Winners and Losers: Fallout from KKR’s Race for Profit Contents

Introduction...... 5 The U.S. Economy...... 9 The KKR Workforce...... 13 Consumers...... 17 Environment...... 23 Conclusion...... 27 Appendices...... 28 Endnotes...... 32 Introduction KKR’s Race for Profit 5

Winners and Losers: Fallout from KKR’s Race for Profit The buyout industry and its harmful practices are receiving greater scrutiny as Americans struggle with a growing sense of anxiety over the state of the economy and the expanding income gap between the richest 10th of Americans and those in the middle class. How does the buyout industry’s “see no evil, accept no responsibility” approach to business really impact Main Street America? With hundreds of thousands of employees, KKR portfolio companies together employ one of the largest private workforces of any U.S.-based firm. While recent reports have focused on the net job loss resulting from leveraged buyouts, there is an additional untold story about the impact of the private equity business model on the rest of the community. A brief look at the record of KKR portfolio companies of investors skilled in manipulating the tax code.”4 over the years on a number of vital issues raises Holland estimated that RJR Nabisco paid $893 million real concerns about the long-term effects of the in taxes for the year it was bought out, received $222 buyout industry on our nation’s economic health, the million in refunds the following year, and paid just $60 environment, the safety of the products we use every million in taxes for the year after that.5 day, and employees’ basic civil rights. Having perfected the play on the RJR Nabisco deal, There is no doubt that KKR is a big winner in the high KKR has since sought to replicate its success. stakes games for profits. In the last years, Fortune Because companies deduct the interest on debt magazine’s estimate of Henry Kravis’s personal fortune taken on during the buyout process, private equity has grown from $2.6 billion in 20061 to $5.5 billion portfolio companies often pay little to no corporate in 2007.2 The real question before us is; if KKR is the income tax. While hard numbers are sometimes biggest winner, who is the biggest loser. hard to wrangle out of the buyout industry, a quick look at the tax implication of two deals paints a very Losers: Taxpayers disturbing picture. According to an initial analysis Debt lies at the very core of the highly profitable buyout using conservative assumptions, we estimate that game. KKR has the companies it is going to buy borrow the government could lose up to $1.2 billion in a large portion of the money necessary to finance the tax revenue during the expected period of KKR’s purchase, frequently tripling the debt of the companies investment in SunGard and Biomet. it buys. The tax code allows those companies to then deduct the interest on that debt off their taxes, KKR has also invested heavily to defend the tax code frequently reducing their income tax obligation to almost it has so skillfully mastered. In 2007, the firm paid nothing. According to a recent Wall Street Journal more than $2 million for lobbying on Capitol Hill, report, corporate loans like those used to finance including lobbying to fight legislation in Congress that buyouts, together with other types of debt issued in could result in closing tax loopholes. recent years, collectively “threaten to deepen the financial system’s wounds and create a growing pileup Losers: Workers of shaky assets on the books of banks.”3 Workers have faced some very real and dangerous issues at KKR portfolio companies. While much debate • Shrinking tax bills. In The Washington Post, Max has focused on layoffs by private equity firms, not much Holland described KKR’s skilled use of debt to lower attention has been paid to the other problems faced by taxes in the RJR Nabisco deal as a “gigantic transfer workers at KKR-controlled companies. KKR portfolio of wealth from the U.S. Treasury to a small group firms have faced claims of racism and sexism and 6 KKR’s Race for Profit

problems with worker safety standards.

• Safety standard violations. KKR portfolio company Toys “R” Us has repeatedly been cited for occupational health and safety standard violations, and at least one worker was even killed at a Toys “R” Us facility.

• Accusations of discrimination. Workers have brought class action lawsuits against multiple KKR- owned companies for alleged pay and promotion discrimination on the basis of race and gender. In October 2007, Willis Group Holdings announced that it had agreed to pay $8.5 million to current and former female employees to settle a class action lawsuit, filed in 2001, alleging pay and promotion discrimination against women between 1998 and 2001.6 Another sex discrimination case filed in 2006 by female executive Adrianne Cronas, who served as vice president, senior vice president, and executive vice president alleges “systemic” discrimination analysis showing that the KKR-owned Weekly Reader, a current affairs newsletter distributed U.S. schools, against female employees.7 was “less likely [than competitor Scholastic News] Losers: Consumers to mention short-term consequences of smoking or KKR portfolio companies employ more than 800,000 to give a clear ‘don’t use’ message, but was more people around the world—one of the largest private likely to present the tobacco industry position on key 10 workforces when compared to other U.S.-based firms, issues.” second only to Wal-Mart. We can buy our toys at a Losers: The Environment Toy’s “R” Us or Dollar General, and in Europe we can fill While going “green” is the latest fad for many U.S. our prescriptions at Boots. Yet, many products sold at corporations, KKR portfolio companies have bucked KKR portfolio company stores have had to be recalled the trend and instead stand accused of industrial due to safety concerns; others have been improperly pollution and a lack of transparency when it comes to and illegally marketed, with potentially dangerous environmental impact. consequences; and a KKR portfolio company has even gone so far as to use a youth-friendly cartoon in a • Industrial emissions. In 2005 and 2006, state marketing campaign for cigarettes. regulators found higher than average levels of trichloroethylene (TCE), a degreaser often used in • Tainted toys. Toys “R” Us and Dollar General had industrial applications, in Montgomery County, Pa., air to pull hundreds of thousands of lead-contaminated due to industrial emissions.11 Regulators identified children’s products from store shelves in 2007. Accellent and Superior Tube sites as sources for the According to news reports and the web site of the TCE, and in light of the test results, Accellent agreed Consumer Product Safety Commission (CPSC), in the to take some belated steps in an attempt to reduce two and a half years following the July 2005 buyout its emissions. According to a news report, Accellent of Toys “R” Us and Babies “R” Us by KKR, Bain, and ranked eighth, nationally, in TCE emissions in 2005, Vornado, at least 391,435 products sold or intended the last year on record at the time of the report.12 for sale exclusively at Toys “R” Us or Babies “R” Us stores have been pulled from the shelves, more • Potentially hazardous products. KKR portfolio than five times as many as the 74,700 products sold company Rockwood Holdings, or its affiliates, have exclusively at their stores that were recalled in the sold wood treated with chromated copper arsenate two and a half years prior to the buyout.8 (CCA), a chemical whose use has reportedly been severely restricted or even banned in wood in • Disturbing synergies. After KKR invested in RJR countries ranging from Germany to Vietnam to Nabisco, the company continued its cartoon Joe Indonesia.13 Meanwhile, Rockwood and Rockwood Camel ad campaign, which reportedly made Camel affiliates have spent hundreds of thousands of dollars 9 cigarettes more appealing to a younger market. lobbying federal agencies to protect their interests. Meanwhile, a study authored by a professor affiliated with the Harvard School of Public Health cited

8 In Demand and Falling Short

The U.S. Economy KKR’s Race for Profit 9

Debt lies at the very core of the highly profitable buyout game. KKR has the companies it is going to buy borrow a large portion of the money necessary to finance the purchase, frequently tripling the debt of the companies it buys. The tax code allows those companies to then deduct the interest on that debt off their taxes, frequently reducing their income tax obligation to almost nothing. At the same time, some of these companies enjoy the benefits of lucrative government contracts. And, according to a recent Wall Street Journal report, corporate loans like those used to finance buyouts, together with other types of debt issued in recent years, collectively “threaten to deepen the financial system’s wounds and create a growing pileup of shaky assets on the books of banks.”14

KKR Wins Big, But At What Cost ownership as a result of the LBO To Taxpayers? $798 and the tax treatment of private MILLION equity deals. All the while, Biomet KKR profits may come at the expense of American also receives revenue from federal taxpayers. Because of debt taken as part of the contracts. In 2006, Biomet won more than $1.5 buyout process, KKR portfolio companies pay little to million in federal contracts.17 [See Appendix 2 for tax no corporate income taxes, but then some of these same companies collect millions of taxpayer dollars as calculation, assumptions, and methodology.] government contractors. • RJR Nabisco deal debt virtually eliminated the company’s tax bill. Because of the debt taken during The SUNGARD DATA SYSTEMS buyout could cost • the KKR buyout, RJR Nabisco replaced taxable income taxpayers more than $500 million over five years. with tax deductible interest write-offs, significantly KKR and its consortium partners took reducing its corporate income taxes. One author $500 SunGard private in August 2005 for writing in the The Washington Post estimated that MILLION $11.4 billion.15 As a result of the debt RJR Nabisco paid $893 million in taxes in its buyout taken during the buyout, tax deductible year, received $222 million in refunds in 1989, and interest payments rose substantially. The company’s paid just $60 million in 1990.18 This author described taxes fell from 33 percent of earnings to an estimated the “net effect of the buyout” as “a gigantic transfer 5 percent of earnings before income and taxes. In of wealth from the U.S. Treasury to a small group of other words, the government may lose in tax revenues as much as $500 million over five years. Meanwhile, investors skilled in manipulating the tax code.”19 SunGard receives millions of dollars in government Beyond these tax implications, at least one KKR contracts. In 2006, SunGard Systems received more portfolio company was accused by the Department of than $12 million in federal contracts.16 [See Appendix Justice of abusing a government reimbursement system. 1 for tax calculation, assumptions, and methodology.] • MEDCATH-operated20 Arizona Heart Hospital was • BIOMET — a KKR portfolio company — stands charged with submitted improper Medicare claims.21 to profit twice over at the expense of American KKR and Welsh Carson Anderson & Stowe took heart taxpayers, receiving government contracts while hospital chain Medcath private in March 1998.22 The paying a low tax rate because of debt taken during company went public in 2001.23 The Department its buyout by KKR. If one adds up all the tax of Justice investigated Arizona Heart Hospital and implications of the KKR leveraged buyout (LBO) of contended that it had submitted improper Medicare Biomet, the deal could eliminate up to $798 million reimbursement claims between 1998 and 2002 in tax revenues during the assumed period of KKR in connection with a medical device that had not 10 KKR’s Race for Profit

received final marketing approval from the Food and sweetened terms, banks underwriting the financing to Drug Administration. The hospital agreed to pay $5.8 these deals held the debt on their own books or quietly million to settle the lawsuit, without admitting fault, unloaded it to hedge funds or other investors for below and agreed to enter into a five-year corporate integrity full value: agreement, which governs clinical trial protocol, with the Office of the Inspector General and the Over the summer, the banks underwriting the U.S. Foodservice deal got stuck holding debt that was 24 Department of Health and Human Services. reportedly trading at least at one point at 91 cents on Deal Debt Creates Risk the dollar, a 10 percent decline in value.34 $16.8 billion in loans for the Alliance Boots deal also proved difficult Piling billions of dollars of debt onto the companies, to market,35 and banks were forced to cancel the sale KKR’s buyouts could increase economic instability, of $1.4 billion in loans to refinance Maxeda, a Dutch and some analysts have suggested that unappealing retail company purchased by KKR in 2004, after it was LBO left debt on banks’ books could contribute to current rejected by investors.36 The sale of debt used to finance economic uncertainty.25 KKR’s buyout of First Data Corp. was carefully watched, In the first half of 2007, KKR announced deals valued as it marked the re-opening of the debt markets for at $142 billion. KKR contributed just $13.3 billion (9.4 LBOs. Beginning in September, First Data loans percent of total transaction value) of its own money, were sold at a 3 percent-4 percent discount, costing and financed the balance with debt as well as equity underwriters $360 million. Bonds were issued at a loss from other investors.26 The $142 billion in deals was of $114 million. In December, Bloomberg reported that reported to be more than KKR’s combined 2005 and underwriters still held $10.4 billion of First Data debt 2006 deals, and more than a third of the firm’s deals that needed to be sold. 37 since its inception.27 However, the conditions that led While some of the LBO debt pipeline had been digested Kravis to declare a “golden era” for buyouts in early by the market, at year-end lenders were reportedly left 200728 changed dramatically in the second half of that with an estimated $161.9 billion in loans and $69.9 year. The overall pace of LBOs declined from $336.4 billion of bonds to distribute.38 The debt pipeline billion in the first six months of the year to $101.9 was eased by the collapse of several deals, including 29 billion in the second half of 2007, and KKR itself KKR’s buyout of Harman International Industries,39 but announced only two deals in the second half of 2007, observers still expect it to take the better part of a year 30 worth less than $4 billion combined. Close to 40 to be fully cleared.40 The debt overhang has depressed bond and loan sales were cancelled or restructured, values of buyout debt.41 Recently, low-rated corporate according to the Economic Times.31 bonds that fueled the buyout boom have plunged in In early July, credit market analysts at Bank of America value, increasing the expectation that banks will look to commented that deals facing push back from debt unload buyout debt at steep discounts.42 Bonds for KKR investors, specifically KKR’s buyouts of Dollar General deal Toys “R” Us have sold as low as 68 cents on the and U.S. Foodservice, had sought significantly dollar, while those for Dollar General have sold as low higher debt leverage than other transactions in the as 80 cents on the dollar.43 According to BusinessWeek, marketplace. Analysts surmised that these deals had the current environment will make it difficult for private pushed investors to finally draw a line in the erosion equity firms to refinance or sell companies they have 44 of lending standards.32 According to midsummer purchased at a profit anytime soon, “if ever.” What news reports, investors rejected initial debt offerings measures will KKR take to make a profit from its Toys on several KKR deals, including Alliance Boots and “R” Us and Dollar General investments? U.S. Foodservice.33 Unable to sell the debt, even with KKR’s Race for Profit 11

KKR 2007 Transactions:

Transaction Total KKR Investment49 Total Debt Company45 Sector46 Country47 Type Transaction48 (% Total Transaction) ($ millions)

ProSiebenSat.1 Media Media Germany LBO 4,235 838.9 (20%) 3,70550

Tarkett S.A. Industrial France LBO 1,949 641.1 (33%)

Yageo Corporation Technology Taiwan PIPE 307 102.5 (33%) 204.551

Dollar General Corporation Retail United States LBO 7,600 1,290.9 (17%) 4,632.352

U.S. Food Services Retail United States LBO 7,304 1,115.9 (15%) 3,55053

Tianrui Group Cement Co., Minority Industrial China 448 113.6 (25%) 388.754 Ltd. stake

MMI Holdings Limited Technology Singapore LBO 757 170.5 (23%) 60055

Alliance Boots plc Retail United Kingdom LBO 24,900 2,530.1 (10%) 18,50056

Laureate Education, Inc. Media United States LBO 3,964 400 (10%) 2,38557

Biomet, Inc. Health Care United States LBO 11,594 1,329 (11%) 6,20058

Financial First Data Corporation United States LBO 29,500 2,550.7 (9%) 24,00059 Services

Energy Future Holdings Limited (formerly, TXU Energy United States LBO 49,000 2,077 (4%) 37,35060 Corp.)

Harman International Technology United States PIPE 400 171.4 (43%) Industries, Incorporated

U.N. Ro-Ro Isletmeleri A.S. Industrial Turkey LBO €380 910 (42%)

Northgate Information Business United Kingdom LBO Solutions Plc Services

KKR—looking to cash in on the credit crunch? KKR is the buyer, performed due diligence as a potential Referring to the current “stressed” credit cycle, David buyer, or knows the industry well.64 Netjes, co-Founder of the KKR Financial hedge fund, said, “The perfect outcome for us is if this environment would KKR’s hedge fund raises numerous concerns and repeat itself day after day for the next several years.”61 questions. The principal concern is that by investing in KKR recently raised a $1 billion strategic capital fund both the debt and equity side of LBOs, KKR is creating for its hedge fund in order to capitalize on the current potential conflicts of interest for its institutional clients, credit crunch and invest in the debt of companies taken such as pension funds and university endowments, private through leveraged buyouts.62 According to the which invest only on the equity side. KKR has not Aug. 16, 2007 issue of Business Week, KKR founder addressed how it plans to “balance” any potential Henry Kravis told investors the firm was focusing on debt conflicts created by the firm’s proposed dual role as investing to make more money from its experience in the both shareholder and bondholder. 63 area of equity buyouts.” In a presentation on Feb. 6, equity firms to refinance or sell companies they have 2008, KKR Financial discussed the “unique knowledge purchased at a profit anytime soon, “if ever.”44 What advantage” that KKR had into $231 billion in pipelined measures will KKR take to make a profit from its Toys LBO debt, 72 percent of which involves deals where “R” Us and Dollar General investments? The KKR Workforce KKR’s Race for Profit 13

Workers have faced some very real and dangerous issues at KKR portfolio companies. While much debate has focused on layoffs by private equity firms, not much attention has been paid to the other problems faced by workers at KKR controlled companies. KKR portfolio firms have faced claims of racism and sexism and problems with worker safety and tragic on-the-job injuries. Claims Of Discrimination On The Job claimed that they received lower wages and a lower Discrimination based on race and gender has chance for promotion than their white counterparts.77 been reported repeatedly by workers at KKR portfolio In 2001, the class action lawsuit was settled by companies. consent decree that called on Tom Thumb to post notices about open jobs and management positions • CAPMARK FINANCE is the subject of a pending in its stores,78 to set up a toll free hotline “in order lawsuit alleging race discrimination in the to give its employees an additional communications workplace. KKR invested in Capmark Finance in channel to make complaints of alleged unfair March 2006.65 Wanda James Speight, a seven-year employment practices at Tom Thumb,”79 and to pay employee of Capmark Finance/GMAC Commercial $3,705,000 into a settlement fund.80 Mortgage Corp., was terminated in May 200666 and filed suit in March 2007.67 The lawsuit claims that • SAFEWAY’s female employees reportedly claimed Ms. Speight was terminated without warning after sex bias in the workplace. KKR bought Safeway positive performance evaluations, and that her in November 1986,81 sold some shares publicly in termination was racially motivated.68 According to 1990,82 and slowly reduced its stake through 2000.83 the allegations in Ms. Speight’s complaint, she was, According to a news report, Safeway agreed to pay $7 at the time of her termination, the highest-ranking million in damages and legal fees to settle a lawsuit filed in 1991 in California on behalf of 20,000 class African American at Capmark Finance Inc.69 members who had worked for the company since • Willis Group Holdings faces claim of “systemic” 1989 and who alleged sex bias in the workplace. sex discrimination against female employees, The settlement reportedly required that Safeway set after agreeing to pay $8.5 million to settle similar goals to increase female management numbers and allegations. KKR purchased Willis Group Holdings improve its salary structure so that women would not in July 1998. Some shares of Willis were offered be encouraged to stay in relatively dead-end jobs.84 publicly in 2001,70 but, according to reports, KKR affiliates continued to hold a stake in the company • TOYS “R” US received a very low 45-point score until at least November 2005.71 In October 2007, (out of a possible 100) on the Human Rights Willis Group Holdings announced that it had agreed Campaign’s 2008 Corporate Equality Index. KKR to pay $8.5 million to current and former female and its buyout partners have owned Toys “R” Us since employees to settle a class action lawsuit, filed in July 2005.85 The rating places Toys “R” Us among 2001, alleging pay and promotion discrimination just 54 companies, out of 519 companies rated, that against women between 1998 and 2001.72 Another received a score of 45 or lower on the equality index.86 sex discrimination case filed in 2006 by female executive Adrianne Cronas, who served as vice Dangerous Worksites president, senior vice president, and executive vice A record of safety violations and on-the-job president alleges, “systemic” discrimination against accidents. female employees.73 • between 2000 and 2007, KKR portfolio companies RANDALL’S-owned Tom Thumb grocery store were cited for 121 OSHA violations and racked • 87 employees filed class action lawsuits in 1998 and up tens of thousands of dollars in fines. Safety 1999 that alleged discrimination against African inspections followed seven reported on-the-job accidents,88 with at least one involving a worker American workers.74 KKR invested in Randall’s in 199775 and announced plans to exit the deal in death.89 July 1999.76 Among other things, black employees • TOYS “R” US facilities have been cited for safety 14 KKR’s Race for Profit

violations and have been the site of a worker death. KKR and two other buyers acquired Toys “R” Us in July 2005.90 In December 2005, a Toys “R” Us worker, Andres Cevallos, in Midlothian, Texas, was killed by a stack of pallets that fell from a platform above him, according to reports in documents obtained from the U.S. department of Labor’s Occupational Safety and Health Administration.91 An investigation resulted in a penalty for Toys “R” Us, and documents in the Department’s investigation file include evidence that the pallets crushed Mr. Cevallos because the mezzanine “pallet return” involved in the incident was missing a brake roll mechanism needed to stop the pallets from falling on those below.92 The department’s file also describes employee interviews in which employees “stated that pallet returns are still used even when maintenance has been notified that the brake rolls are missing. The pallet returns are not shut down.”93 At a Maryland Toys “R” Us distribution center facility in August 2005, an inspection conducted by Maryland its products, a resin powder, and claimed that the Occupational Safety and Health found that guardrails Borden resin caused a 1999 explosion that killed and were not fitted on an approximately 25-foot-high injured workers. According to the same Associated runway, among other safety violations.94 According Press story, Borden reportedly agreed to pay the to documents in the Maryland OSH file, the August foundry’s parent company $2.5 million and to pay 2005 inspection followed an injury accident at the more to victims of the blast.97 facility two months earlier; during interviews related Workplace exposure to toxic chemicals used by to that accident, employees revealed safety issues a KKR portfolio company may be associated with of concern beyond those that led to the follow-up inspection. Toys “R” Us was cited by Maryland increased cancer risk. Occupational Safety and Health.95 • ROCKWOOD HOLDINGS products may be associated with increased cancer risk. KKR acquired Rockwood Borden ChemicalS resin was reportedly the • Holdings in 2000 and still owns nearly a 51 percent cause of deadly explosions. KKR acquired Borden stake in the company.98 Rockwood Holdings and Inc. in 1995, focused on the company’s chemicals its affiliates market wood treated with chromated arm, and then sold the company to another private copper arsenate (CCA).99 A 2004 EPA assessment of equity firm in August 2004. 96 According to a news occupational risks for workers exposed to CCA and report, a Massachusetts foundry accused Borden of CCA-treated wood found cause for concern in certain failing to disclose the explosive properties of one of CCA application processes.100i

i The EPA report did not address Rockwood or any other company specifically and did not address Rockwood’s or any other company’s manufacturing processes specifically. KKR’s Race for Profit 15 Consumers KKR’s Race for Profit 17

KKR portfolio companies make and sell hosts of consumer products, from toys to pharmaceuticals. Many KKR portfolio company products have had to be recalled due to safety concerns; others have been improperly and illegally marketed, with potentially dangerous consequences; and a KKR portfolio company has even gone so far as to use a youth-friendly cartoon in a marketing campaign for cigarettes. Product Safety Issues other companies were stocked by Toys “R” Us before Inadequate product safety controls have resulted being recalled.106 In August 2007, The New York in untold numbers of potentially dangerous products Times reported that vinyl bibs sold by Toys “R” Us had making their way onto American store shelves. In been found to contain levels of lead well above the the past year, companies in which KKR has major lead paint limit in tests conducted by the Center for investments have recalled hundreds of thousands of Environmental Health and the Times.107 Toys “R” Us did not immediately recall the bibs, claiming that they children’s products posing lead and other hazards.101 102 passed its own independently conducted safety tests • TOYS “R” US, under KKR ownership, has seen in May. The Consumer Product Safety Commission a spike in recalls in general. According to news also did not issue a recall, but in May, the agency said reports and the web site of the Consumer Product that it had tested vinyl bibs from a variety of retailers Safety Commission (CPSC), in the two and a half and warned of a potential risk of lead exposure for years following the July 2005 buyout of Toys “R” Us babies swallowing pieces of cracked vinyl from used and Babies “R” Us by KKR, Bain, and Vornado, at bibs.108 least 391,435 products sold or intended for sale exclusively at Toys “R” Us or Babies “R” Us stores In September, Toys “R” Us CEO Gerald “Jerry” have been pulled from the shelves, more than Storch faced questioning about dangerous toys at a five times as many as the 74,700 products sold U.S. Senate committee hearing.109 While Toys “R” exclusively at their stores that were recalled in the Us said that it had increased testing and made toy two and a half years prior to the buyout.103 returns easier,110 problems continued. On Oct. 24, 2007, a tester from the Environmental Health Fund, [See Appendix 3 for Toys “R” Us/Babies “R” Us recall using a hand-held X-ray Fluorescence (XRF) analyzer, data.] found that one part of a Hannah Montana backpack A total of 346,700 lead-contaminated products sold purchased at Toys “R” Us contained up to 6,000 exclusively by Toys “R” Us or Babies “R” Us were ppm of lead, an alarming 10 times the legal lead paint limit.111 On Jan. 16, 2008, photo frames sold pulled from the shelves in 2007.105 In addition, numerous lead-contaminated toys from Mattel and at Babies “R” Us were recalled because of high lead

Toys “R” Us/Babies “R” Us Pre- and Post-Buyout Recalls (according to CPSC web site)104:

400,000 391,435 Buyout 350,000 300,000 250,000 Pre-Buyout (Cum.) Post-Buyout (Cum.) 200,000 150,000 Number of Recalls 100,000 74,700 50,000 0 03 03 04 04 05 05 06 06 07 07 Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Date 18 KKR’s Race for Profit

Toys “R” Us and Dollar General Lead Recalls on KKR took Dollar General private in the summer of 2007.124 In August, one month after the sale of Dollar KKR’s Watch, Voluntary: General to KKR and other private equity investors was completed,125 and following lead recalls of Dollar Company Product Recalled Date of Recall Number of Products General key chains in the spring,126 the company Toys “R” Us Military-style toy sets114 October 31, 2007 16,000 received a request for information from the House Subcommittee on Commerce, Trade and Consumer Decorating sets115 October 4, 2007 15,000 Protection.127 According to news reports, the newly Vinyl bibs116 August 2007 160,000 KKR-owned Dollar General also received a request to attend a hearing before the subcommittee but failed Coloring cases117 August 30, 2007 27,000 to appear, eliciting a sharp response from panel Military-style toy sets118 March 13, 2007 128,700 chair Bobby Rush (D-Ill.): “If a company like Dollar General can sell their products to my constituents, Dollar General Children’s sunglasses119 November 8, 2007 51,000 and make money off my constituents, one would think at a minimum they would appear before this 120 Toy Cars November 7, 2007 380,000 subcommittee.”128 Documents submitted to the Key chains121 October 4, 2007 192,000 committee by Dollar General show that two days after Congress sent Dollar General the request for Halloween tumblers122 October 4, 2007 63,000 information, the company filed a report with the 1,032,700 Consumer Products Safety Commission regarding an additional 192,000 lead-contaminated key chains,129 content in surface paint.112 which have since been recalled.130

In November 2007, the California Attorney General Since October 2007, 63,000 Halloween tumblers,131 and Los Angeles City Attorney sued Toys “R” Us and 51,000 children’s sunglasses, 132 and 380,000 toy seventeen companies for manufacturing or selling cars133 have been recalled because of high lead children’s products with “unlawful quantities of lead.”113 content. The Ecology Center also reported that its tests, conducted in November 2007 using a hand- DOLLAR GENERAL recalled hundreds of thousands • held XRF analyzer, found that two items distributed of children’s products in 2007, and the Ecology by Dollar General contained lead and arsenic, and Center has reported that a hand-held XRF test reported that one product, the Elmo Take Along card conducted in November 2007 found high lead game, was among the most toxic products the Ecology levels in a pair of sunglasses distributed by 134 Dollar General.123 Approximately 686,000 lead- Center tested. contaminated products have been recalled since • BOYDS COLLECTION products were recalled because Ecology Center’s Reported Findings on two items distributed by Dollar General:

Red Elmo bag with three card games, tested in November 2007135:

Components Lead Cadmium Chlorine/PVC Arsenic Mercury

Red bag material 9,997 0 155,111 984 120

Plasticized playing cards 0 0 0 3 0

Toxic Rating: HIGH LOW MED HIGH HIGH

Other chemicals detected: Bromine, Antimony

Gray/silver boys sunglasses tested in November 2007136:

Components Lead Cadmium Chlorine/PVC Arsenic Mercury

Frame 1,689 0 0 203 33

Lens 53 0 0 0 0

Toxic Rating: HIGH LOW LOW HIGH LOW KKR’s Race for Profit 19

of high lead content. Toy drums imported from from 2003 to 2006.” 148 The criminal indictment of China by Boyds Collection, in which, according to the that doctor accuses him of describing “table salt” company’s most recent (June 2006) SEC filings, KKR as more dangerous than Xyrem and describes an owns a major stake,137 were found to contain high alleged incident of off-label marketing in November levels of lead and were recalled in May 2007.138 In 2005.149 Following its investigation, the Department August, Boyds was sent a request for information by of Justice also concluded that doctors marketing the the House Subcommittee on Commerce, Trade and drug for Orphan induced physicians to prescribe the Consumer Protection for discussion at a hearing on drug for improper uses—prescriptions then covered September 19.139 Boyds’ response letter to Congress by Medicare and Medicaid at a cost of millions of reveals that red paint on its toy drums contained dollars.150 Orphan ultimately pled guilty to criminal 2,395 ppm of lead,140 almost four times the federal charges in 2007 and Jazz agreed to pay $20 million in lead paint limit.141 penalties and compensation,151 including $12.2 million to insurers like Medicare and Medicaid.152 Jazz/ • EVENFLO saw a huge spike in recalls while it was Orphan continued to sell Xyrem as of summer 2007 under KKR ownership. KKR reportedly owned Evenflo and posted record sales of the drug for the quarter from September 1996 to August 2004. According 153 to the CPSC’s Web site, there were at least seven that ended June 30, 2007. distinct recalls of Evenflo portable carrier-car seats, • Toys “R” Us placed a toy bead set on the cribs, child gates and playpens between 1997 and company’s “hot” list that was recalled soon 2003, while there were just two recalls of Evenflo afterward. In September, Toys “R” Us placed Aqua products between 1984 and 1996, and one recall Dots “Super Studio” on its 2007 “Fabulous 15” list from 2004 to the present.142 [See Appendix 4 for of hot holiday toys.154 In November, the Consumer Evenflo recall data.] Product Safety Commission recalled Aqua Dots beads after two children in the U.S. reportedly fell KKR portfolio companies have engaged in irresponsible into “comatose” conditions after ingesting the Aqua marketing of potentially dangerous products. Dots beads,155 which were coated with a chemical JAZZ PHARMACEUTICAL’s subsidiary, Orphan that could metabolize into the deadly date rape • 156 Medical, was sued by the Department of Justice drug Gamma Hydroxy Butyrate (GHB). The GHB for off-label marketing of a “date rape drug” and for precursor 1, 4 butanediol found in the Aqua Dots is submitting false claims to the government. Gamma- designated by the U.S. Food and Drug Administration Hydroxybutyric acid (GHB) one of three government- as a Class I Health Hazard, which means it can cause recognized date rape drugs,143 is sold under the life-threatening harm.157 trade name Xyrem by Orphan Medical, a subsidiary • A ROCKWOOD HOLDINGS affiliated company of KKR portfolio company Jazz Pharmaceuticals since continues to market wood treated with an 144 June 2005. Xyrem was approved by the FDA for arsenic and chromium compound, even though treatment of cataplexy, a weak muscle condition safer products are available.158 Treatment with associated with narcolepsy, and later for a second chromated copper arsenate (CCA), a chemical that condition related to narcolepsy.145 A whistle-blower contains arsenic and chromium,159 has generally lawsuit alleged that Orphan marketed the drug for been restricted to wood intended for non residential off-label uses of Xyrem by Orphan Medical was filed use since 2003.160 Viance—a firm partly owned by in January 2005, and following an investigation, the Rockwood Holdings, which was owned by KKR from government alleged in a related criminal case that off- 2000—2005,161 and in which KKR still owns a nearly label marketing occurred between 2003 and 2006, 51 percent stake162 —markets CCA-treated wood.163 with specific unlawful incidents alleged in November 2005.146 According to a news account, CCA-treated wood has been banned in several countries, including The civil whistle-blower suit claimed that off-label Switzerland, Vietnam and Indonesia, and severely marketing was pushed as a way to boost sales restricted in others, such as Japan, Sweden and of a drug with a very small market and named a Germany.164 A coalition led by the Environmental doctor as a defendant who was allegedly hired by Working Group and the Healthy Building Network Orphan to promote Xyrem for treatment of fatigue, exerted enough pressure on the EPA and CCA insomnia, and other ailments.147 According to The manufacturers to achieve a voluntary phase out of New York Times, the doctor marketed Xyrem for off- CCA-treated wood for residential use in 2003.165 label uses in “hundreds of speeches and seminars Despite the existence of safer alternatives, like 20 KKR’s Race for Profit

alkaline copper quaternary (ACQ) treated wood,166 which Rockwood companies also sell,167 Viance continues to sell CCA-treated wood.168 Astonishingly, marketing materials for a CCA-treated wood product available on Viance’s web site continue to show images of residential use. See http:// www.treatedwood.com/products/ supatimber/stfactbrochure.pdf.169

• RJ REYNOLDS, under KKR, sold cigarettes using a youth-friendly cartoon camel. After KKR acquired RJR Nabisco in 1989,170 the company reportedly slashed advertising costs except for its advertising campaign featuring a cartoon Joe Camel.171 In 1992, Surgeon General Antonia Novello enlisted Ralph Reed to lobby on behalf of its ad- and the American Medical Association called for an sponsored educational television station, Channel end to cartoon Joe cigarette advertisements, because One. During the time KKR held an investment in the appeal to children was too great.172 While RJR Primedia,180 the company’s Channel One television denied suggestions that Joe Camel was inducing station was criticized for subjecting a captive student children to smoke,173 an Associated Press story cited audience to advertisements,181 which have reportedly a study showing that three years after cartoon Joe included military recruitment spots.182 Politicians and cigarette advertisements appeared, 32.8 percent of community groups have sought to take Channel One underage smokers were smoking Camels, compared out of schools.183 In order to protect its interests,184 to just 0.5 percent years earlier.174 Primedia hired lobbyists like Jack Abramoff185 and • K-III student publications presented tobacco industry reportedly enlisted the assistance of Ralph Reed in more favorably while under KKR, which was invested Texas.186 According to a Senate Finance Committee in RJR Nabisco at the time. KKR invested in K-III report, Abramoff worked with Primedia to obtain communications (which later became Primedia) in favorable media and other pieces about Channel One, 1989, and still holds a stake in the company.175 In including from anti-tax conservative Grover Norquist.187 the 1990s, K-III owned the Weekly Reader Corp., Ralph Reed reportedly made phone calls on Channel which put out two publications targeted at school One’s behalf188 when the Texas Board of Education children: Weekly Reader and Current Events.176 A was considering banning the television station.189 study authored by a professor affiliated with the A KKR-controlled company flouted rules and standards Harvard School of Public Health uncovered and applicable to child care facilities. described disturbing changes in the way in which tobacco news was presented by the magazines after • KINDERCARE violated child care facility standards they came under KKR control, while KKR was also while in KKR’s portfolio. KinderCare was a KKR invested in tobacco giant RJ Reynolds (half of RJR portfolio company from 1997190 to 2004.191 According Nabisco).177 The study found that “[a]fter KKR’s to a news report, between 2000 and 2003, a takeover, [Current Events] gave relatively little space Minnesota KinderCare had 73 violations of child care to describe the health consequences of smoking.”178 licensing rules, including at least one case of child The study also cited an earlier analysis showing that abuse, and one of child neglect.192 The Minneapolis when Weekly Reader was compared to its competitor, Star Tribune also reported that the problems found Scholastic News, “the Weekly Reader under KKR at the facility included the following: “A staff member was less likely to mention short-term consequences threw milk in a child’s face; a school-age child left of smoking or to give a clear ‘don’t use’ message, the center unnoticed; another was sent home with an but was more likely to present the tobacco industry unauthorized adult; a toddler was left alone on the position on key issues.”179 playground for about 15 minutes. There were dozens of problems with discipline, staffing and record- • Primedia hired Jack Abramoff and reportedly KKR’s Race for Profit 21

keeping.”193 The center’s license was suspended The Department of Justice, the Secret Service by the Minnesota Department of Human Services, officers, and other African American Denny’s although this did not apparently keep it from operating customers filed a series of race discrimination while the company appealed the suspension.194 lawsuits against Denny’s. Denny’s and the Department of Justice entered into a Consent Decree, Alleged Discrimination Against Customers and as part of that and other settlements Denny’s Race discrimination against customers has been alleged reportedly agreed to pay tens of millions to class at at least two portfolio companies on KKR’s watch. member claimants (without admitting fault).205 • TOYS “R” US has been accused of race Denny’s also experienced financial trouble, and, when discrimination against its customers. KKR, together KKR exited its Flagstar investment in 1997, The New with Bain and Vornado, acquired Toys “R” Us in York Times headline read: “Buyout Kings flee disaster 195 July 2005. Two African American Toys “R” Us at Denny’s.”206 customers, Patricia Drayton and Valerie Kirk, allege that they were asked to present receipts to exit a Toys “R” Us has also been accused of poor Bronx Toys “R” Us while white customers were not treatment of nursing mothers and immigrant asked the same.196 Ms. Drayton also alleges that children. Based on its experience with Denny’s, why a white fellow shopper approached her after the has KKR not taken a more proactive approach to prevent incident and said that he was upset by how she had discrimination against its customers at Toys “R” Us? been treated, as he had not been asked to present • TOYS “R” US and BABIES “R” US stores reportedly his receipt while exiting the store.197 Drayton and Kirk challenged mothers’ breast-feeding rights. According filed suit in Manhattan federal court in July 2007.198 to news accounts, a nursing mother claims that On Feb. 7, 2008, an amended complaint with 13 employees at the Manhattan flagship Toys “R” Us individual plaintiffs199 was filed in court, charging that urged her in 2006 to move to the basement and, Toys “R” Us has “engaged in a continuing pattern when she refused, threatened to call security. The and practice of discriminatory stops, searches, New York Daily News reported that Toys “R” Us harassment and unequal treatment of the plaintiffs admitted offering the mother the “opportunity” to and other African American shoppers at Toys ‘R’ Us nurse elsewhere but denied doing anything else.207 stores, while non-African American shoppers were not To protest the store’s alleged conduct, a group of subjected to a similar treatment.”200i i, The Drayton/ dozens of mothers staged a Times Square Toys Kirk incidents follow a similar 2004 alleged incident “R” Us “nurse-in” in July 2006.208 A reporter also involving a black man at a Bronx Toys “R” Us, which conducted a breastfeeding test at a Babies “R” Us also resulted in a lawsuit pending in federal district later in 2006 and said that she was asked to move to 201 court. a breastfeeding room.209

• DENNY’S became infamous for racist treatment of • A TOYS “R” US contest discriminated against the customers in the 1990s. KKR bought a majority stake children of immigrants. In January 2007, Toys “R” in Denny’s parent Flagstar in 1992.202 In 1991, a group Us denied the baby of Chinese immigrants a $25,000 of high school and college students were allegedly New Year’s Baby savings bond because the baby’s denied service by a Denny’s restaurant in California. mother was not a legal U.S. resident. The baby, Yuki That incident and others led to an investigation by the Lin, is an American citizen, and she reportedly won a U.S. Department of Justice, and many more alleged tie-breaker drawing for the savings bond, but Toys “R” incidents of race discrimination at Denny’s were Us had a rule in the sweepstakes that disqualified ultimately uncovered—including several in 1993, well children whose mothers were not legal residents, into KKR’s ownership. In one of the 1993 incidents, so a baby in Georgia was awarded the prize. 210 six uniformed U.S. Secret Service officers claimed that After political and business leaders in the Chinese they waited for nearly an hour for service while their American community spoke out against Toys “R” Us, white colleagues at other tables were served promptly.203 the company belatedly awarded the Chinese American Citing events like these, lawyer John P. Relman of the baby girl a second savings bond.211 Washington Lawyers’ Committee for Civil Rights and Urban Affairs was quoted in the San Francisco Chronicle in 1993 as saying: “It is our belief that Denny’s still ii The federal court docket in this case was last accessed Feb. 19, does not get it and Denny’s should be held accountable 2008. Toys “R” Us has indicated that it intends to file a motion to for discrimination that is continuing to occur.”204 dismiss the plaintiffs’ complaint. Environment KKR’s Race for Profit 23

While going “green” is the latest fad for many U.S. corporations, KKR portfolio companies have bucked the trend and instead stand accused of industrial pollution and a lack of transparency when it comes to environmental impact. Industrial Pollution BORDEN CHEMICALS has been blamed in news KKR portfolio companies have been linked to toxic reports and by nearby residents for industrial emissions, environmental problems, and possible health emissions, noxious odors, and even health problems risks. in communities surrounding its plants. KKR acquired Borden Inc. in 1995, focused on the company’s • An ACCELLENT Pennsylvania plant emitted a chemicals arm, and then sold the company to another potentially toxic compound into surrounding private equity firm in August 2004. 217 218 According to communities. In 2005 and 2006, state regulators news reports, Rubbertown, Ky. residents living near an found higher than average levels of trichloroethylene ever-expanding Borden plant expressed concern in 2004 (TCE), a degreaser often used in industrial over noxious odors, noise, and even health problems applications, in Montgomery County, Pa., air due to that the residents blamed on Borden’s plant and on a industrial emissions.212 Regulators identified Accellent nearby landfull.219 One resident was quoted as saying, and Superior Tube sites as sources for the TCE, “We can’t sit in our yards or open the windows ….We and in light of the test results, Accellent agreed to are poisoned by the chemical soup every day.”220 A take some belated steps in an attempt to reduce its Time magazine special report described an August emissions. In 2005, Accellent released 58 tons of 1996 incident during which a “witch’s brew of toxic TCE into the air.213 Accellent was acquired by KKR and chemicals”—a combination of ethylene dichloride, vinyl- another private equity firm in November 2005, and chloride monomer, and hydrogen chloride—was released Accellent is still a KKR portfolio company today.214 outside a Borden plant in Geismar, La. Time reported several more toxic releases that followed at the same According to a news report, Accellent ranked eighth, plant.221 Time also criticized Borden for receiving tax nationally, in TCE emissions in 2005, the last year abatements while doing millions of dollars of serious on record at the time of the report.215 TCE exposure environmental damage.222 In 2000, the New Orleans can affect the human central nervous system and Times-Picayune identified Borden Chemicals as one of has been associated with cancer and other health the Mississippi corridor’s top 10 polluters.223 problems, according to the EPA.216 24 KKR’s Race for Profit

Lack Of Corporate Transparency groups to OK the buyout, a number of critics pointed Lack of transparency means that threats to the to causes for concern. According to some observers, environment posed by corporate practices may be TXU faced such strong community and political unknown. opposition that building all 11 new coal plants already seemed unlikely.238 Others decried the fact that • Rockwood Holdings was found to be among adding three highly polluting lignite (a particularly dirty the worst chemical companies in corporate kind of coal)239 plants to the Texas horizon is nothing environmental and social responsibility reporting.224 to celebrate. And for some, the little-publicized KKR acquired Rockwood Holdings in 2000 and still detail about nuclear plants replacing some of the owns nearly a 51 percent stake in the company.225 A coal plants’ energy generation made the deal a step recent study by the Roberts Environmental Center backward. According to Dan Becker of the Sierra (REC) at Claremont McKenna College, named Club: “… Coal is bad and nuclear power is worse. after and partially funded by an endowment from There are four major problems with nuclear power: KKR founding partner George Roberts,226 rated 29 waste, costs, terrorism and accidents. So switching chemical companies according to the quality of their from coal to nuclear power is like giving up smoking environmental and social responsibility reporting.227 and taking up crack.”240 The REC’s mission is to provide students with “a comprehensive and realistic understanding of Critics have suggested that TXU’s price cuts came up today’s environmental issues and the ways in which short because TXU was already overcharging by 20 they are being and can be resolved, and to identify, percent to 25 percent.241 Further, the Dallas Morning publicize, and encourage policies and practices News expressed concern that after guaranteed rate that achieve economic and social goals in the most cuts end in 2008, TXU could try to pass along some environmentally benign and protective manner.”228 It of the costs of the new debt incurred as part of the was under this purview that the study was conducted. buyout deal.242 The Dallas Morning News also recently Rockwood Holdings, in which KKR has a nearly reported that TXU contributed in 2007 to the Center 51 percent stake,229 received a grade of D, 230 on a for Energy and Economic Development, a policy curved scale. 231 According to the study, Rockwood’s organization opposed to a “cap-and-trade” system reporting is “very incomplete.” 232 The study concluded (whereby companies meet emission standards by that Rockwood needed “substantial improvement” trading, buying or selling carbon credits) that is widely in reporting on emissions, waste disposal, and regarded as one of best options for curbing carbon environmental policy, among many other categories.233 dioxide emissions. It was unclear whether TXU made Good quality sustainability reporting should not be the reported contribution before or after the private conflated with, but is an important part of, good equity acquisition.243 corporate citizenship. “Greenwashing” might have been employed to push an Lobbying For Chemical Industry Rights energy deal through political hurdles. • ROCKWOOD HOLDINGS has lobbied to protect its interests in the chemical industry. Since 2002, TXU’s buyers—KKR and other private equity • Rockwood Holdings and its subsidiaries have paid firms—emphasized steps that may offer only close to $900,000 to Washington D.C., firms that marginal (if any) benefits to consumers and the have lobbied the Environmental Protection Agency, environment. In February 2007, news broke that the Consumer Product Safety Commission, the U.S. KKR and fellow private equity giant TPG were looking House of Representatives and Senate on chemical to buy Texas-based TXU Energy Corp. (now Energy industry issues and pesticide policies. 244 [See Future Holdings).234 At that time, activist and political Appendix 5 for details on Rockwood’s lobbying.] opposition to TXU’s high energy prices and plans to build 11 new coal plants was coming to a head.235 • BORDEN CHEMICALS lobbied on hazardous waste KKR and its private equity partners put a deal on the issues. In 1999 and 2000, Borden hired Hoper Owen table that included halting plans to build eight of the Gould & Wilburn to lobby on hazardous waste disposal 11 coal plants and offering energy consumers a price and transportation issues. Borden paid the firm more reduction236 (guaranteed through 2008).237 than $300,000.245 While the deal was enough for some environmental

Conclusion KKR’s Race for Profit 27

Private equity companies play an outsized role in the global economy. Few doubt the power they could wield to set higher standards for the rest of the world. Sadly, KKR has not met this challenge. Its portfolio companies have been accused of employment discrimination, have had to pull lead- tainted children’s toys from store shelves, have emitted potentially dangerous chemicals into community environments, and have been cited repeatedly for workplace safety violations. KKR and other private equity firms own companies all across the globe, and, if left unchecked, the troubling business practices at their portfolio companies in the United States could become global in nature.

Buyout firms such as KKR hail their unique ability to create value in newly acquired companies because they “need not concern themselves with the short- term perspectives of the financial markets.”246 This same ownership model frees buyout firms such as KKR to meet the challenges facing us as a nation and to become leaders by voluntarily adopting policies for themselves and their portfolio companies that:

• Conserve and protect public health and the environment by phasing out the use of toxic chemicals in favor of safer substitutes and reducing toxic waste, emissions and effluent, by requiring content and safety information on all products produced or sold by their portfolio companies, and by prioritizing elimination of the most hazardous chemicals, such as lead, from children’s toys;

• Ensure that their portfolio companies treat all workers fairly by adopting and effectively implementing principles that guarantee the right to fair treatment, the right to form a union, a safe workplace, and a companies employ hundreds of thousands of workers, workplace free from discrimination; Henry Kravis and George Roberts can and should engage in the debate about how best to safeguard • Ensure that their portfolio companies strictly adhere our environment, rebuild the middle class, and protect to civil rights laws that protect their employees and workers and consumers from dangerous chemicals and consumers; and products. • Ensure that the private equity industry and its buyout By taking direct responsibility for the negative billionaires pay their fair share of taxes. consequences of their portfolio companies’ business practices and their impact on consumers, residents For our nation to continue to prosper and grow, the and workers, KKR can become a leader in corporate responsibility to resolve the problems we face must be responsibility and can set a standard that will improve shared by all. As co-founders of a firm whose portfolio the value of its companies to the communities at large. 28 KKR’s Race for Profit

Appendix 1

SunGard Data System’s Debt and Taxes KKR relies on leverage to meet its target returns. One benefit of the significant debt financing KKR uses to acquire portfolio companies is that they can deduct the interest costs from portfolio companies’ profits, effectively reducing taxable income.

SunGard Data Systems, Inc. Pre- and Post-Deal Interest and Taxes: ($millions)

Pre-Deal Annual Average Post-Deal (2006) (2000-2004)

Earnings Before Interest and $530 $536 Taxes (EBIT)

Interest Paid $10 $613247

% EBIT 2% 114%

Income Tax Paid $174 $24248

% EBIT 33% 5%

KKR and its consortium partners took SunGard Data System’s Inc. private in August 2005 for $11.4 billion.249 The $36 per share offer represented a 44.3% premium over the price prior to the company’s confirmation of merger discussions,250 generating an estimated $481 million in taxes paid by shareholders as a result of the buyout.251 As a result of the transaction, the company’s debt increased from an average of $287 million from 2000-2004 to $7.4 billion in 2006.252 Due to the increase in debt, SunGard’s post-transaction interest paid increased from 2% to 114% of its earning before interest and taxes (EBIT), and the company’s income taxes paid fell from 33% of EBIT to 5%. If we assume that over the next 5 years SunGard’s EBIT grows at a rate of 15%, its growth rate from 2000-2004, then from 2006-2010 the company will generate $3.6 billion in EBIT. Taxed at the pre-transaction average rate of 33%, this would have generated an estimated $1.2 billion in income taxes. However, at tax rate of 5% the company will pay only $162 million in income taxes during this period.

KKR’s Race for Profit 29

Appendix 2

Tax Effects of the Biomet Buyout KKR and its consortium partners bought Biomet for $11.4 billion, with an equity contribution of $5.2 billion, and debt financing totaling $6.6 billion.253 Based on current LIBOR rates and spreads, we assume an average blended interest rate of 8.6% for the debt.254 We also assume that Biomet will maintain a constant debt load, neither paying down debt nor increasing its leverage during a 5 year holding period.

Over the last 5 years Biomet has grown earnings before taxes (EBT) at a compound annual growth rate of approximately 2%,255 and we assume that growth rate will continue during the KKR holding period. We assume the length of that period to be 5 years, using the assumption Morgan Stanley used in its fairness opinion.256 We also assumed that KKR and other equity investors would achieve an IRR of 22.5%, all consistent with the Morgan Stanley fairness opinion.257

For tax rates, we assume that tax rates effective in 2006 will remain constant throughout the duration of KKR’s ownership of Biomet, including the effective corporate tax rate, the tax rates for dividends and for capital gains, as well as the tax rate for KKR’s partners’ carried interest. Finally, we assume that Biomet’s public shareholders are all taxable investors, since it is difficult to calculate the percentage of shares owned by tax-exempt investors, even though assuming some percentage of tax-exempt investors would exacerbate the effect of the transaction on tax revenues, since the taxes collected on capital gains created by the LBO exceed the taxes foregone by the lack of dividend payouts.

With those assumptions, here is a summary of our calculations:

With the assumed 2% growth rate, Biomet’s EBT during the KKR holding period would have totaled approximately $2.66 billion. However, the incremental interest payments on the debt will total approximately $2.86 billion, which could completely wipe out the company’s corporate tax expense.258 Without those interest payments, Biomet’s corporate tax expense on the $2.66 billion in EBT would have totaled up to $879 million. In addition, if Biomet had remained a public company and continued to pay out dividends at the 24% annual growth rate in dividend payments that Biomet had from 2003-2007,259 shareholders would have received $644 million in dividends during the KKR holding period. At the current 15% dividend tax rate, that would have generated up to $97 million in taxes, assuming all shareholders were taxable.

However, it could also be argued that the buyout itself created capital gains that generated taxes above what would have been collected absent the buyout. The $46/share buyout price represents a 32% premium over the closing stock price of $34.78 on April 3, 2006, the last trading day prior to public speculation about Biomet executing a significant transaction.260 If one assumes that all holders as of April 4th earned incremental long-term capital gains of $11.22 per share as a result of the buyout, and that all holders were taxable, then the buyout generated incremental capital gains taxes of $543 million.

Finally, KKR and the equity consortium could earn a total profit of $9.1 billion upon selling Biomet after five years. KKR may keep up to 20% of that profit as its carried interest (as is common in the industry), and under current law KKR’s individual partners’ portions of that carried interest is taxed at the 15% rate for capital gains. If the tax treatment of carried interest were to be changed from capital gains to ordinary income, then the increased taxes KKR partners and the equity consortium partners would owe the IRS could be up to $365 million.261

Tax Loss:

Amount ($ millions)

Five years of taxable EBT (879)

Five years of shareholder dividend taxes (97)

Difference in carried interest tax at income v. capital gains rate (365)

Shareholder deal payout taxes 543

Total taxes (798) 30 KKR’s Race for Profit

Appendix 3 Toys “R” Us/Babies “R” Us Recall Data:262

Number Company (role in bringing Date Recall Cum. Item Brand Hazard Recalled product to the market)

Crib Drop-Side Jun-03 2,000 2,000 Babi Italia/Jopi Industries Entrapment Babies “R” Us (exclusive retailer) Rails Agglo Corporation/Toys “R” Toys “R” Us (exclusive retailer, Nov-03 50,000 52,000 Sidewalk Chalk Lead Us importer)

Mar-04 900 52,900 Snail Push Toy Playwell/Babies “R” Us Choking Babies “R” Us (exclusive retailer)

May-04 11,300 64,200 “Passport” Stroller Baby Trend Fall Babies “R” Us (exclusive retailer) Fun Years Music Jan-05 10,500 74,700 Big Drum Musical Kids Station Inc. Choking Toys “R” Us (exclusive retailer) Set Sep-05 25,000 25,000 BMX Bicycles World Wide Cycle Supply Inc. Fall Toys “R” Us (exclusive retailer)

Nov-05 335 25,335 “Europe” Crib Delta Enterprise Corp. Lead Toys “R” Us (exclusive retailer)

Radio-Controlled Aug-06 7,500 32,835 Spin Master Burn Toys “R” Us (exclusive retailer) Airplanes “Cars” Toy Storage Nov-06 3,000 35,835 Delta Enterprise Corp. Lead Toys “R” Us (exclusive retailer) Benches “Elite Operations” Toy Century Industrial Toys “R” Us (exclusive retailer, Mar-07 128,700 164,535 Lead, Laceration Toy Sets Company/Toys “R” Us importer)

Aug-07 160,000 324,535 Vinyl baby bibs Various Lead Toys “R” Us (exclusive retailer)

Wooden Coloring Toys “R” Us Aug-07 27,000 351,535 Imaginarium Lead Cases (exclusive retailer, importer) Children’s Toys “R” Us (exclusive retailer, Oct-07 15,000 366,535 CKI Toys Lead Decorating Sets importer) “Elite Operations” Toys “R” Us (exclusive retailer, Oct-07 16,000 382,535 Toy World Group/Chu Tat Toys Lead Toy Sets importer) Entrapment, Nov-07 8,900 391,435 Cribs Bassettbaby Babies “R” Us (exclusive retailer) Strangulation

Appendix 4 Evenflo Recall Data:263 Date Item Number Brand Hazard

Feb-84 Li’l Squeaker Pacifiers 16,000 Evenflo Choking

Aug-91 Disney Pacifiers N/A Evenflo Choking

Happy Camper, Happy Cabana, Kiddie Jun-97 1,200,000 Evenflo Sharp edges, Entrapment Camper Portable Playyards

Mar-98 On My Way Infant Car Seats/Carriers 800,000 Evenflo Injuries from malfunction

Sep-98 Hike “n Roll Child Carriers 22,000 Evenflo Strangulation

Jun-99 Snugli Soft Carriers 327,000 Evenflo Fall

May-01 Joyride Car Seats/Carriers 3,400,000 Evenflo Fall Home Décor Swing Wooden Baby Access to restricted Oct-01 20,500 Evenflo Gates areas, Choking Jan-03 Portable Wood Cribs 364,000 Evenflo Fall

May-07 Embrace Car Seat/Carrier 450,000 Evenflo Fall KKR’s Race for Profit 31

Appendix­­­­­­­ 5 Rockwood Lobbying264:

Rockwood Lobbying Firm Lobbyist(s) Description of Activity Contacts Dates Payment ($) Subsidiary

Environmental and Chemicals/ Chemical Industry Issues: “Working Chemical The Accord EPA, CPSC, Patrick Quinn with EPA and CPSC on the scientific Oct 02 -June 07 332,500 Specialties, Inc. Group, Inc. House, Senate assessment of treated wood and related issues,” among other things

Ferguson Kenneth Brown, Environmental Issues; “EPA Viance House, Senate Dec 06 – June 07 50,000 Group Matthew Ward pesticides policy”

Pillsbury Rockwood Environmental Issues: “Registration EPA, House, Winthrop Shaw Peter Robertson Jul 06 - Jun 07 30,000 Specialties, Inc. of wood preservatives” Senate Pittman LLP

Joseph Trapasso; Environmental and Chemicals/ Peter Robertson; EPA, Council on Chemical Industry Issues: Rockwood Patton Boggs Gregory Laughlin; Environmental “Registration of ACC and Copper Nov 03 - Jun 06 130,000 Specialties, Inc. LLP Darryl Nirenberg; Quality, House, HDO and “Department of Energy Charles Phillips; Senate Vehicle Technology Funding” Catherine Conner

Rockwood Chemicals/Chemical Industry Levine & Co. Kenneth Levine House, Senate Jul 03 – June 07 340,000 Specialties, Inc. Issues: “EPA regulatory issues”

882,500 32 KKR’s Race for Profit

(Endnotes) Healthcare, March 16, 1998. 1 “The 400 Richest Americans,” Forbes, September 21, 2006 (http:// 23 “False Claims Act: Arizona Heart Hospital Reaches www.forbes.com/lists/2006/54/biz_06rich400_The-400-Richest- Settlement,” December 10, 2007 (http://www.surgicenteronline. Americans_NameProper_print.html). com/hotnews/7ch10155123.html); “MedCath Corporation Clarifies 2 “The Forbes 400,” Forbes, September 20, 2007 (http://www.forbes. Affiliate Shareholder Restrictions,” PR Newswire, February 28, com/lists/2007/54/richlist07_Henry-Kravis_ED7G.html). 2002 (http://phx.corporate-ir.net/phoenix.zhtml?c=129804&p=irol- newsArticle&ID=538316&highlight=). 3 Rappaport, Liz, Carrick Mollenkamp and Karen Richardson, “New Hitches in Markets May Widen Credit Woes,” The Wall Street Journal, 24 Settlement Agreement between the US Department of Justice and February 11, 2008, p. A1. Arizona Heart Hospital, November 2007 (http://www.crowell.com/pdf/ MedicalDevice/Settlement-Agreement_US_Arizona-Heart-Hospital.pdf); 4 Max Holland, “Silence of the Corporate Lambs; RJR Nabisco’s Fleecing: “Cardiovascular Disease; Arizona Heart Hospital Reaches Settlement Where Was Vernon Jordan?” The Washington Post, December 6, 1992. Regarding Clinical Research Matter,” Health Insurance Law Weekly, 5 Max Holland, “Silence of the Corporate Lambs; RJR Nabisco’s Fleecing: November 25, 2007. Where Was Vernon Jordan?” The Washington Post, December 6, 1992. 25 “What’s Behind Private Equity’s Warnings About Debt?” Dealbreaker. 6 “Willis Group settles sex bias lawsuit for $8.5 mln,” Reuters, October com, April 26, 2007 (http://www.dealbreaker.com/2007/04/ 22, 2007; “Willis Resolves Class Action Settlement,” October 22, 2007. whats_behind_private_equitys_w.php#more); “LBO debt crisis may be (http://www.willis.com/news/News_Attachments/Willis_Press_Release_ on the horizon,” bloggingbuyouts.com, October 10, 2007 (http://www. class_action_10222007.pdf). bloggingbuyouts.com/2007/10/10/lbo-debt-crisis-may-be-on-the-horizon/). 7 Compl. at 15, Adrianne Cronas v. Willis Group Holdings, No. 26 KKR & CO. L.P., Form S1 filed with SEC on November 13, 2007, p. 06-CV-15295 (S.D. NY filed December 19, 2006); Docket, Adrianne Cronas 142-143. v. Willis Group Holdings, No. 06-CV-15295 (S.D. NY filed December 19, 27 “KKR’s ‘one-trick pony’ leads the charge,” Financial Times, May 13, 2006). 2007. 8 “Bain Capital, KKR and Vornado Complete Acquisition of Toys 28 “Financing woes dim ‘golden era’,” The Economic Times, July 27, “R” Us, Inc.” KKR, July 21, 2005 (http://kkr.com/news/press_ 2007. releases/2005/07-21-05.html); Consumer Product Safety Commission online database, accessed December 20, 2007 (http://www.cpsc.gov/ 29 Keogh, Bryan and Pierre Paulden “Citigroup, Goldman Cut LBO cgi-bin/firm.aspx); “Toys “R” Us Inc. Announces Precautionary Stop Sale Backlog with 10% Discounts,” Bloomberg.com, December 28, 2007. on All Vinyl Bibs,” August 17, 2007 (http://www3.toysrus.com/Investor/ 30 Press releases available at http://www.kkr.com/news/press_ pr/081707.html). releases/2007/12-21-07.html and http://www.kkr.com/news/press_ 9 Martha T. Moore, “RJR Nabisco slims down,” USA Today, August 28, releases/2007/12-13-07.html, accessed January 22, 2008. 1989. 31 “Financing woes dim ‘golden era’,” The Economic Times, July 27, 10 William DeJong, “When the tobacco industry controls the news: KKR, 2007. RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 32 Rosenberg, Jeffrey, “Credit Market Strategist, The Bloom’s Off the v.5, pp42-148. Liquidity Rose,” Bank of America Debt Research, July 2, 2007, p. 8. 11 “Collegeville Area Air Monitoring Results,” Pennsylvania Department 33 Mollenkamp, Carrick, Jason Singer and Serena Ng, “Red-Flag Sale: of Environmental Protection, October 15-18, 2007 (http://www.depweb. LBO Debt Deals Face New Snags,” WJS SHOULD THIS BE Wall Street state.pa.us/southeastro/cwp/view.asp?a=3&Q=532150&pp=3). Journal ?, July 20, 2007 and Ng, Serena, Tim Lauricella and Michael 12 “Rendell objects to EPA trichloroethylene rule,” Associated Press, Aneiro, “Market Jitters Stir Come Fears For Buyout Boom,” WSJ SAME?, April 24, 2007. June 28, 2007. 13 Sharon Beder, “Arsenic and old wood,” Sydney Morning Herald 34 Cimilluca, Dana, “A Novel Theory: Break Up LBOs,” The Wall Street (Australia), July 16, 2003 (http://homepage.mac.com/herinst/sbeder/ Journal, July 28, 2007, p. B4. arsenic.html). 35 Gutscher, Cecile and Edwad Evans, “Deutsche Bank, JP Morgan 14 Rappaport, Liz, Carrick Mollenkamp and Karen Richardson, “New Cancel KKR Boots Loans Again,” Bloomberg, IS IT BLOOMBERG OR Hitches in Markets May Widen Credit Woes,” The Wall Street Journal, BLOOMBERG.com? BE CONSISTENT August 3, 2007. February 11, 2008, p. A1. 36 Gutscher, Ceceli and John Glover, “KKR Cancels $1.4 Billion Loan to 15 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule Refinance Maxeda LBO,” Bloomberg, July 16, 2007. 14A, filed June 27, 2005, p. 49-50 (http://www.sec.gov/Archives/edgar/ 37 Keogh, Bryan and Pierre Paulden “Citigroup, Goldman Cut LBO data/789388/000119312505131157/ddef14a.htm#toc70754_57). Backlog with 10% Discounts,” Bloomberg.com, December 28, 2007. 16 Contract summary viewed at fedspending.org, accessed February 38 Id. 7, 2008 (http://www.fedspending.org/fpds/fpds.php?company_name= 39 Donnelly, Chris, “Harman LBO Dropped, Further easing Institutional sungard&sortby=r&detail=0&datype=T&reptype=r&database=fpds&fisc pipeline,” Standard & Poor’s LCD News, September 24, 2007. al_year=2006&submit=GO). 40 Latour, Abby and Matthew Fuller, “Heavy Calendar, Weak US 17 Contract summary viewed at fedspending.org, accessed February Economy Cloud ’08 HY Outlook,” WHAT IS THE REST OF THIS? 7, 2008 http://www.fedspending.org/fpds/fpds.php?company_name= biomet&sortby=r&detail=0&datype=T&reptype=r&database=fpds&fisca 41 Thornton, Emily. “Done Deals in Distress,” BusinessWeek, January l_year=2006&submit=GO 31, 2008. 18 RJR Nabisco Corp Form 10-K, Filed with the SEC December 31, 42 Rappaport, Liz, Carrick Mollenkamp and Karen Richardson, “New 1993, p17; Max Holland, “Silence of the Corporate Lambs; RJR Nabisco’s Hitches in Markets May Widen Credit Woes,” The Wall Street Journal, Fleecing: Where Was Vernon Jordan?” The Washington Post, December 6, February 11, 2008, p. A1. 1992. 43 Thornton, Emily. “Done Deals in Distress,” BusinessWeek, 19 Max Holland, “Silence of the Corporate Lambs; RJR Nabisco’s January 31, 2008; Andrew Bary, “On Borrowed Time,” Barron’s, Fleecing: Where Was Vernon Jordan?” The Washington Post, December 6, December 3, 2007 (http://online.barrons.com/public/article/ 1992. SB119647328789510311.html?mod=mktw). 20 Gonzales, Angela, “Heart Hospital parent takes stab at going public 44 Id. again,” The Business Journal, June 1, 2001. 45 Id. 21 “Cardiovascular Disease; Arizona Heart Hospital Reaches Settlement 46 Id. Regarding Clinical Research Matter,” Health Insurance Law Weekly, 47 Id. November 25, 2007. 48 Id. 22 Kristen Hallam, “Medcath accepts leveraged buyout,” Modern KKR’s Race for Profit 33

49 Id. Note that this is not the deal equity total, it is the KKR Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001). anticipated commitment. 78 Consent Decree. p14, Terry L. Troupe et al. v. Randall’s Food & 50 ProSeibenSat.1 Media Quarterly Report Q3 2007, January 1, 2007 Drugs Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001). to September 30, 2007, p.26. Long and short term financial liabilities as 79 Consent Decree. p17, Terry L. Troupe et al. v. Randall’s Food & of September 30, 2007 (post-deal available debt figure). Drugs Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001). 51 KKR & CO. L.P., Form S1 filed with SEC on November 13, 2007, p. 80 Consent Decree. p6, Terry L. Troupe et al. v. Randall’s Food & Drugs 143. Calculated as total PIPE investment less KKR reported equity. Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001). 52 Dollar General Corp, Form 8K, filed with SEC on June 15, 2007. 81 Lawrence M. Fisher, “Safeway Buyout: A Success Story,” The New 53 Ng, Serena, Tim Lauricella and Michael Aneiro, “Market Jitters Stir York Times, October 21, 1988 (http://query.nytimes.com/gst/fullpage.htm Come Fears For Buyout Boom,” WSJ WALL STREET JOURNAL?, June 28, l?res=940DE0D8163BF932A15753C1A96E948260&sec=&spon=). 2007. 82 “KKR finds added value in floating investments,” Financial News, 54 “Manufacturing/Industrial,” Project Finance, May 1, 2007. Debt November 23, 2003. financed transaction and working capital. 83 Hung Tran, “KKR Sells Safeway Shares,” BuyOuts, May 15, 2000. 55 Kuo, Patricia, “Leverage buyouts in Asia raise $1.7 billion; KKR and 84 “Safeway Sex Bias Suit Settled for $ 5 Million ,” The Associated CCMP lead in high-yield loans,” Business Asia by Bloomberg, July 26, Press, April 1, 1994. 2007, p. 14. 85 “Bain Capital, KKR and Vornado Complete Acquisition of 56 Haywood, Kate and Anousha Sakoui, “Alliance Boots Debt Sale Toys “R” Us, Inc.,” July 21, 2005 (http://kkr.com/news/press_ Delayed,” WSJ Wall Street Journal?, July 20, 2007. releases/2005/07-21-05.html); “Current Investments,” KKR website, 57 Laureate Education, Inc, Form PREM14C, filed with SEC on July 13, Accessed February 13, 2008 (http://kkr.com/investments/current-invest. 2007, p. 64-66. html). 58 Biomet Inc, Form PREM14C, filed with SEC on July 18, 2007, p. 86 Andrea Stone, “Gay rights group raises red flag on Wal-Mart policies; 45-46, calculated as Transaction total less equity total. Retail giant has ‘more work to do’ on equality,” USA Today, November 21, 59 First Data Corp, Form DEFM14A, filed with SEC on June 26, 2007, 2007 (http://www.usatoday.com/money/industries/retail/2007-11-20-wal- p.57-59. mart-gays_N.htm). 60 TXU Corp, Form DEFM14A, filed with SEC on July 25, 2007, p.8. 87 U.S. Occupational Safety and Health Inspection Data, osha.gov, Accessed February 6, 2008. Inspection data “Establishment Search” 61 Presentation by KKR Financial at the 2008 Credit Suisse Financial conducted for KKR portfolio companies. Services Forum, February 6, 2008, accessed from http://www. kkrfinancial.com/kfn/investors/events.cfm February 7, 2008. The quote 88 U.S. Occupational Safety and Health Inspection Data, osha.gov, is from the audio is at precisely 17:35 minutes into the presentation. Accessed February 6, 2008. Inspection data “Establishment Search” conducted for KKR portfolio companies. 62 https://secure.kkrscf.com/login accessed February 7, 2008. 89 U.S. Department of Labor, OSHA file for inspection 30849680 63 Goldstein, Matthew and David Henry, “KKR: Cashing In on Credit (documents dated May 25, 2006, December 6, 2005, and December 7, Woes,” BusinessWeek, August 16, 2007. 2005). 64 Presentation by KKR Financial at the 2008 Credit Suisse Financial 90 “Bain Capital, KKR and Vornado Complete Acquisition of Services Forum, February 6, 2008, slide 11. Toys “R” Us, Inc.,” July 21, 2005 (http://kkr.com/news/press_ 65 Cormac Doyle, “GMAC Sells 78% of Commercial Mortgage Business, releases/2005/07-21-05.html); “Current Investments,” KKR website, World Markets Analysis, March 24, 2006; “Investor Group Completes Accessed February 13, 2008 (http://kkr.com/investments/current-invest. Acquisition of Majority Stake in GMAC Commercial Holding Corp. html). GMACCH changes its name to Capmark Financial Group Inc.,” March 23, 91 .U.S. Department of Labor, OSHA file for inspection 30849680 2006 (http://www.kkr.com/news/press_releases/2006/03-20-06.html) (documents dated May 25, 2006, December 6, 2005, and December 7, 66 Compl. at 1, Speight v. Capmark Finance Inc. and William F. Aldinger 2005). III, No. 07-CV-00890 (E.D. PA filed March 5, 2007). 92 U.S. Department of Labor, OSHA file for inspection 30864980 67 Docket report, Speight v. Capmark Finance Inc. and William F. (document dated August 2, 2006). Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007). 93 Accident Synopsis – Toys “R” Us. December 6, 2005. 68 Compl. at 10-1, 20-22, Speight v. Capmark Finance Inc. and William 94 Maryland Department of Labor, Licensing and Regulation, Citation F. Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007). and Notification of Penalty for Citation 1 Item 1, Inspection 309119162, 69 Compl. at 13, Speight v. Capmark Finance Inc. and William F. September 13, 2005, p5. Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007). 95 Maryland Department of Labor, Licensing and Regulation, Inspection 70 “Willis’ US Flotation Raises Eyebrows, Post Magazine, April 12, Report, Inspection 309119162, August 26, 2005, p6. 2001. 96 “Apollo to buy Borden; KKR to unload Borden Chemical to another 71 “Willis Group Announces Secondary Offering for the Sale of equity firm,” Chemical Week, July 7, 2004 (http://pubs.acs.org/cen/ Remaining KKR Shares,” Business Wire, November 8, 2005. news/8227/8227apollo.html); David Carey, “Hexion rewards Apollo,” Daily Deal/The Deal, November 14, 2006. 72 “Willis Group settles sex bias lawsuit for $8.5 mln,” Reuters, October 22, 2007; “Willis Resolves Class Action Settlement,” October 97 “Foundry blast victims settle lawsuits for $25 million,” Associated 22, 2007 (http://www.willis.com/news/News_Attachments/Willis_Press_ Press, September 26, 2003. Release_class_action_10222007.pdf). 98 MSN Money, “Rockwood Holdings, Inc.: Ownership,” based on SEC 73 Compl. at 15, Adrianne Cronas v. Willis Group Holdings, No. filings from 3/15/07, Accessed February 12, 2008 (http://moneycentral. 06-CV-15295 (S.D. NY filed December 19, 2006); Docket, Adrianne Cronas msn.com/ownership?Symbol=ROC); “Current Investments,” KKR website, v. Willis Group Holdings, No. 06-CV-15295 (S.D. NY filed December 19, Accessed February 13, 2008 (http://kkr.com/investments/current-invest. 2006). html). 74 Consent Decree. p2, Terry L. Troupe et al. v. Randall’s Food & Drugs 99 Rockwood 2006 Annual Report, p16 (internal numbering) Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001). (http://www.rockwoodspecialties.com/rock_english/media/pdf_files/ RockAnnlRept_06.pdf). 75 “Buyout firm to own most of Randalls,” The Houston Chronicle, April 4, 1997. 100 Risk Assessment Science Support Branch, U.S. Environmental Protection Agency, Office of Pesticide Programs Antimicrobials Division, 76 David Snow, “Randall’s, Newsquest Nab Strong Returns for KKR,” “Human Exposure,” February 18, 2004. BuyOuts, August 16, 1999. 101 Consumer Product Safety Commission online recall database, 77 Consent Decree. p3, Terry L. Troupe et al. v. Randall’s Food & Drugs 34 KKR’s Race for Profit

accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx); 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml07/07127.html). See Appendix 3. 119 Consumer Product Safety Commission, “Children’s Sunglasses 102 “Toys with Highest Levels,” HealthyToys.org, accessed January 22, Recalled by Dollar General Due to Violation of Lead Paint Standard,” 2008 (http://healthytoys.org/product.most.php); Statement from XRF November 8, 2007 (http://www.cpsc.gov/cpscpub/prerel/ analyzer operator Kenny Bruno. prhtml08/08080.html). 103 “Bain Capital, KKR and Vornado Complete Acquisition of Toys 120 Consumer Product Safety Commission, “Toy Cars Recalled by Dollar “R” Us, Inc.” KKR, July 21, 2005 (http://kkr.com/news/press_ General Due to Violation of Lead Paint Standard,” November 7, 2007 releases/2005/07-21-05.html); Consumer Product Safety Commission (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08068.html). online database, accessed December 20, 2007 (http://www.cpsc.gov/ 121 Consumer Product Safety Commission, “Key Chains Recalled by cgi-bin/firm.aspx); “Toys “R” Us Inc. Announces Precautionary Stop Sale Dollar General Due to Risk of Lead Exposure,” October 4, 2007 (http:// on All Vinyl Bibs,” August 17, 2007 (http://www3.toysrus.com/Investor/ www.cpsc.gov/cpscpub/prerel/prhtml08/08009.html). pr/081707.html). 122 Consumer Product Safety Commission, “Dollar General Recalls 104 Consumer Product Safety Commission online recall database, Tumblers Due to Violation of Lead Paint Standard,” October 4, 2007 accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx). (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08007.html ); “KKR 105 Consumer Product Safety Commission “Toys “R” Us Recalls “Elite Completes Acquisition of Dollar General Corporation,” July 6, 2007 Operations” Toy Sets Due to Violation of Lead Paint Standard,” October (http://www.kkr.com/news/press_releases/2007/07-06-07.html). 31, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08057. 123 HealthyToys.org, Elmo Take-along Card Games, Tested November html); Consumer Product Safety Commission, “CKI Recalls Children’s 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1242); Decorating Sets Due to Violation of Lead Paint Standard; Sold Exclusively HealthyToys.org, Fashion Sunglasses, Tested November 30, 2007 (http:// at Toys “R” Us,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/ healthytoys.org/product.details.php?getrecno=1247). prhtml08/08008.html); “Toys ‘R’ Us pulls vinyl bibs as precaution against lead problems,” Associated Press, August 17, 2007 (http://www.cnn. 124 Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite com/2007/US/08/17/tainted.bibs.ap/index.html); “Toys ‘R’ Us recalls Operations” Toy Sets Due to Lead and Laceration Hazards,” March 13, Chinese art sets,” Associated Press, August 30, 2007 (http://www. 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml07/07127.html); usatoday.com/news/nation/2007-08-30-3658467802_x.htm); Consumer Consumer Product Safety Commission, “Toy Cars Recalled by Dollar Product Safety Commission, “Toys “R” Us Recalls “Elite Operations” Toy General Due to Violation of Lead Paint Standard,” November 7, 2007 Sets Due to Lead and Laceration Hazards,” March 13, 2007 (http://www. (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08068.html); Consumer cpsc.gov/cpscpub/prerel/prhtml07/07127.html). Product Safety Commission, “Children’s Sunglasses Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 8, 2007 106 Toys “R” Us Product Recalls, Toys “R” Us Corporate Website, (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08080.html); Consumer Accessed February 12, 2008 (http://www2.toysrus.com/guest/ Product Safety Commission, “Key Chains Recalled by Dollar General prodRecallsList.cfm). Due to Risk of Lead Exposure,” October 4, 2007 (http://www.cpsc. 107 Eric Lipton, “Some Baby Bibs Said to Contain Levels of gov/cpscpub/prerel/prhtml08/08009.html); Consumer Product Safety Lead,” The New York Times, August 15, 2007 (http://www.nytimes. Commission, “Dollar General Recalls Tumblers Due to Violation of Lead com/2007/08/15/business/15lead.html?_r=1&ref=asia&oref=slogin). Paint Standard,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/ 108 Id; Consumer Product Safety Commission, “CPSC Warns About Worn prhtml08/08007.html ). Vinyl Baby Bibs,” May 2, 2007 http://www.cpsc.gov/CPSCPUB/PREREL/ 125 Dollar General Corporations, “KKR completes acquisition of Dollar prhtml07/07175.html General Corporation,” July 6, 2007 (http://www.secinfo.com/dUM7d. 109 “Senate to hold safety hearing today,” Associated Press, September ubz.d.htm). 12, 2007 (http://www.enn.com/top_stories/article/22964/print). 126 Dollar General Letter to Rep. Bobby Rush (D-IL) in response to 110 Annys Shin, “On Hill, Toy Firm Officials Apologize and Promise House Energy and Commerce Subcommittee on Commerce, Trade Changes,” Washington Post, September 13, 2007 (http://www. and Consumer Protection request for information, September 10, washingtonpost.com/wp-dyn/content/article/2007/09/12/ 2007 (http://energycommerce.house.gov/CPSC%20lead/Responses/ AR2007091202546_pf.html); Toys “R” Us Product Recalls, Toys “R” Us DollarGeneral.091007.response.082207.pdf). Corporate Website, accessed February 12, 2008 (http://www2.toysrus. 127 “U.S. panel sets Sept 19 hearing on lead-tainted toys,” Reuters, com/guest/prodRecallsList.cfm). August 23, 2007 (http://www.reuters.com/article/topNews/idUSN23267 111 Bruno statement, supra note 2; Agency for Toxic Substances and 59220070823?feedType=RSS&feedName=topNews). Disease Registry, Lead FAQs, accessed September 27, 2007 (http://www. 128 Katy Byron, “More lead-paint toy recalls coming, source says,” CNN, atsdr.cdc.gov/csem/lead/pb_standards2.html). September 20, 2007 (http://www.cnn.com/2007/US/09/20/toy.safety/ 112 Consumer Product Safety Commission “Photo Frames Recalled by index.html). The Gift Wrap Company Due to Violation of Lead Paint Standard,” January 129 “U.S. panel sets Sept 19 hearing on lead-tainted toys,” Reuters, 16, 2008 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08165.html). August 23, 2007 (http://www.reuters.com/article/topNews/idUSN2326 113 Marc Lifsher and Abigail Goldman, “The state seeks to force Mattel, 759220070823?feedType=RSS&feedName=topNews); Letter from Dollar Toys R Us and 18 other companies to adopt procedures for inspecting General Merchandising to House Energy and Commerce Subcommittee products,” Los Angeles Times, November 19, 2007. on Commerce, Trade and Consumer Protections, September 10, 2007 (http://energycommerce.house.gov/CPSC%20lead/Responses/ 114 Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite DollarGeneral.091007.response.082207.pdf). Operations” Toy Sets Due to Violation of Lead Paint Standard,” October 31, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08057.html). 130 Consumer Product Safety Commission, “Key Chains Recalled by Dollar General Due to Risk of Lead Exposure,” October 4, 2007 (http:// 115 Consumer Product Safety Commission, “CKI Recalls Children’s www.cpsc.gov/cpscpub/prerel/prhtml08/08009.html). Decorating Sets Due to Violation of Lead Paint Standard; Sold Exclusively at Toys “R” Us,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/ 131 Consumer Product Safety Commission, “Dollar General Recalls prhtml08/08008.html). Tumblers Due to Violation of Lead Paint Standard,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08007.html). 116 “Toys ‘R’ Us pulls vinyl bibs as precaution against lead problems,” Associated Press, August 17, 2007 (http://www.cnn.com/2007/ 132 Consumer Product Safety Commission, “Children’s Sunglasses US/08/17/tainted.bibs.ap/index.html). Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 8, 2007 (http://www.cpsc.gov/cpscpub/prerel/ 117 “Toys ‘R’ Us recalls Chinese art sets,” Associated Press, August prhtml08/08080.html). 30, 2007 (http://www.usatoday.com/news/nation/2007-08-30- 3658467802_x.htm). 133 Consumer Product Safety Commission, “Toy Cars Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 7, 2007 118 Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08068.html). Operations” Toy Sets Due to Lead and Laceration Hazards,” March 13, 134 “Toys with Highest Levels,” HealthyToys.org, Accessed January 22, KKR’s Race for Profit 35

2008 (http://healthytoys.org/product.most.php); HealthyToys.org, Elmo jazzpharma.com/news.php?id=43). Take-along Card Games, Tested November 30, 2007 (http://healthytoys. 154 “Toys “R” Us announces hot toy list for holiday season 2007,” org/product.details.php?getrecno=1242); HealthyToys.org, Fashion September 27, 2007 (http://www4.toysrus.com/Investor/pr/092707a. Sunglasses, Tested November 30, 2007 (http://healthytoys.org/product. html). details.php?getrecno=1247). 155 “US mother says her son began to stumble and vomit after eating 135 HealthyToys.org, Elmo Take-along Card Games, Tested November 30, Chinese-made toy, now recalled,” Associated Press, November 7, 2007 2007 (http://healthytoys.org/product.details.php?getrecno=1242). (http://www.iht.com/articles/ap/2007/11/08/america/NA-GEN-US-Toys- 136 HealthyToys.org, Fashion Sunglasses, Tested November 30, 2007 Date-Rape-Drug.php). (http://healthytoys.org/product.details.php?getrecno=1247). 156 “Toys Linked To “Date Rape” Drug Pulled,” CBS News, November 137 Boyds Collection SEC Form 10-Q, Filed June 8, 2006, p11 (http:// 8, 2007 (http://www.cbsnews.com/stories/2007/11/07/health/ www.sec.gov/Archives/edgar/data/1074530/000110465906040639/ main3469765.shtml). a06-13170_110q.htm); Boyds “suspension of duty to file reports” with 157 “US mother says her son began to stumble and vomit after eating the SEC: Boyds Collection SEC Form 15, Filed June 28, 2006 (http:// Chinese-made toy, now recalled,” Associated Press, November 7, 2007 www.sec.gov/Archives/edgar/data/1074530/000110465906044096/ (http://www.iht.com/articles/ap/2007/11/08/america/NA-GEN-US-Toys- a06-14405_11512b.htm). The suspension means that there is no public Date-Rape-Drug.php). information on Boyds’ ownership since June 2006. 158 Supatimber Consumer Information Brochure, Viance Corporate 138 “A Look at Recent U.S. Toy Recalls,” Associated Press, August 15, Website, Downloaded February 12, 2007 (http://www.treatedwood.com/ 2007 (http://biz.yahoo.com/ap/070814/toy_recall_glance.html?.v=5); products/supatimber/stfactbrochure.pdf). Consumer Product Safety Commission, “Toy Drums Recalled by The Boyds Collection Ltd. Due to Lead Poisoning Hazard,” May 30, 2007 (http://www. 159 Eric Savitz, “Under Pressure,” Barron’s, June 17, 2002 (http://www. cpsc.gov/cpscpub/prerel/prhtml07/07196.html). bancca.org/CCA_News/BarronsCCAarticle_061702.html). 139 “U.S. panel sets Sept 19 hearing on lead-tainted toys,” Reuters, 160 Consumer Product Safety Commission, “Statement of Chairman August 23, 2007 (http://www.reuters.com/article/topNews/idUSN23267 Hal Stratton: Regarding No. HP-01-03, a Petition for a Ban on Use of CCA 59220070823?feedType=RSS&feedName=topNews). Treated Wood in Playground Equipment,” November 4, 2003 (http://www. cpsc.gov/CPSCPUB/PREREL/prhtml04/04026stratton.html); EPA CCA 140 Boyds Collection Letter to Rep. Bobby Rush (D-IL) in response Fact Sheet, Accessed October 1, 2007 (http://www.epa.gov/oppad001/ to House Energy and Commerce Subcommittee on Commerce, Trade reregistration/cca/). and Consumer Protection request for information, August 27, 2007 (http://energycommerce.house.gov/CPSC%20lead/Responses/ 161 Richard Teitelbaum, “The KKR Way,” Bloomberg Markets, August BoydsCollection.091007.response.082207.pdf). 2007 (http://www.bloomberg.com/news/marketsmag/kkr.pdf). 141 Agency for Toxic Substances and Disease Registry, Lead FAQs, 162 MSN Money, “Rockwood Holdings, Inc.: Ownership,” based on SEC accessed September 27, 2007 (http://www.atsdr.cdc.gov/csem/lead/ filings from 3/15/07, accessed February 12, 2008 (http://moneycentral. pb_standards2.html). msn.com/ownership?Symbol=ROC); “Current Investments,” KKR website, accessed February 13, 2008 (http://kkr.com/investments/current-invest. 142 “KKR Completes Acquisition of Spalding & Evenflo,” September 30, html). 1996; “Weston Presidio buys Evenflo,” The Deal/Daily Deal, February 9, 2007; Consumer Product Safety Commission Online Recall Database, 163 Rockwood Holdings, Inc. SEC Form 10-K, Filed accessed February 13, 2008 (http://www.cpsc.gov/cgi-bin/firm.aspx). April 2, 2007, p7 (http://www.sec.gov/Archives/edgar/ data/1261302/000110465907024694/a07-6010_110k.htm#Item7_ 143 U.S. Department of Health and Human Services website, “Date ManagementsDiscussionAndAna_193242) Rape Drugs,” Accessed October 19, 2007 (http://www.4women.gov/faq/ rohypnol.htm#1). 164 Sharon Beder, “Arsenic and old wood,” Sydney Morning Herald (Australia), July 16, 2003 (http://homepage.mac.com/herinst/sbeder/ 144 George White and Christine Idzelis, “Jazz Pharma makes an off-key arsenic.html). debut,” Daily Deal/The Deal, June 4, 2007. 165 “About the Safe Playgrounds Project,” nocca.org, accessed February 145 U.S. FDA Center for Drug Evaluation and Research website, “Xyrem 12, 2008 (http://www.noccawood.ca/links.htm). (sodium oxybate): Questions and Answers,” accessed February 7, 2007 (http://www.fda.gov/cder/drug/infopage/xyrem/xyrem_qa.htm). 166 Jay Romano, “Minimizing contact with chemically treated wood,” New York Times, October 15, 2003 (http://www.sfgate.com/cgi-bin/article. 146 Alex Berenson, “Indictment of Doctor Tests Drug cgi?f=/c/a/2003/10/15/HO122613.DTL). Marketing Rules,” The New York Times, July 22, 2006 (http:// www.nytimes.com/2006/07/22/business/22drugdoc.html?_ 167 PreservePlus product page, Viance Corporate Website, accessed r=1&pagewanted=2&oref=slogin). February 12, 2008 (http://www.treatedwood.com/products/ preserveplus/). 147 Compl. at 4, United States of America v. Orphan Medical et al., No. 05-CV-00387 (E.D. NY filed January 24, 2005, 2008). 168 Supatimber product page, Viance Corporate Website, accessed February 12, 2008 (http://www.treatedwood.com/products/supatimber/). 148 Alex Berenson, “Indictment of Doctor Tests Drug Marketing Rules,” The New York Times, July 22, 2006 (http:// 169 Supatimber Consumer Information Brochure, Viance Corporate www.nytimes.com/2006/07/22/business/22drugdoc.html?_ Website, Downloaded February 12, 2007 (http://www.treatedwood.com/ r=1&pagewanted=2&oref=slogin). products/supatimber/stfactbrochure.pdf). 149 Alex Berenson, “Indictment of Doctor Tests Drug 170 Martha T. Moore, “RJR Nabisco slims down,” USA Today, August 28, Marketing Rules,” The New York Times, July 22, 2006 (http:// 1989. www.nytimes.com/2006/07/22/business/22drugdoc.html?_ 171 Id. r=1&pagewanted=2&oref=slogin). 172 “Doctors Attack Advertising Camel,” The Associated Press, March 150 “U.S. Department of Justice; Officials from U.S. Department of 10, 1992. Justice report details of recent activities,” Pharma Investments, Ventures 173 Id. & Law Weekly, October 7, 2007. 174 “Id. 151 Alex Berenson, “Maker of Narcolepsy Drug Pleads Guilty in U.S. Case,” The New York Times, July 14, 2007. 175 Daniel Gross, “Sub-Primedia,” April 22, 3003 (http://www.slate. com/id/2081824/); “Current Investments,” KKR website, Accessed 152 “U.S. Department of Justice; Officials from U.S. Department of February 13, 2008 (http://kkr.com/investments/current-invest.html) Justice report details of recent activities,” Pharma Investments, Ventures & Law Weekly, October 7, 2007; Jazz Pharmaceuticals Form 10-Q, filed 176 William DeJong, “When the tobacco industry controls the news: KKR, August 10, 2007. RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 v.5, p142. 153 Jazz Pharmaceuticals, “Jazz Pharmaceuticals, Inc. Announces Second Quarter 2007 Financial Results,” August 9, 2007 (http://www. 177 William DeJong, “When the tobacco industry controls the news: KKR, 36 KKR’s Race for Profit

RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 197 Id. v.5, p142. 198 Id. 178 William DeJong, “When the tobacco industry controls the news: KKR, 199 Compl. at 9-21, Drayton et al. v. Toys R Us et al., No. 07-CV-6315 RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 (S.D. NY filed February 7, 2008); Docket, Drayton et al. v. Toys R Us et al., v.5, p145. No. 07-CV-6315 (S.D. NY filed February 7, 2008). 179 William DeJong, “When the tobacco industry controls the news: KKR, 200 Compl. at 1, Drayton et al. v. Toys R Us et al., No. 07-CV-6315 (S.D. RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 NY filed February 7, 2008); Docket, Drayton et al. v. Toys R Us et al., No. v.5, pp142-148. 07-CV-6315 (S.D. NY filed February 7, 2008). 180 Daniel Gross, “Sub-Primedia,” April 22, 3003 (http://www.slate. 201 “Patron bring discrimination claims against security guards and com/id/2081824/); “Current Investments,” KKR website, Accessed owner,” Security Law Newsletter, April 2006; Bishop v. Toys “R” Us-NY February 13, 2008 (http://kkr.com/investments/current-invest.html). LLC, 414 F.Supp.2d 385 (S.D.N.Y. Feb. 8, 2006) (available on Lexis). The 181 Todd Shields, “Abramoff probe touches Primedia’s Channel One, docket in this case was last accessed on February 19, 2008. MPA,” MediaWeek.com, October 16, 2006 (http://www.mediaweek.com/ 202 Leah Beth Ward, “New Name, Fresh Start,” Charlotte Observer, mw/news/print/article_display.jsp?vnu_content_id=1003254277). November 30, 1997; “Investment History,” KKR Corporate Website, 182 Ira Teinowitz, “Primedia employed lobbyist Abramoff for Channel Accessed February 19, 2008 (http://www.kkr.com/investments/history. One,” Advertising Age, January 11, 2006 (http://www.commercialalert. html). org/news/Archive/2006/01/primedia-employed-lobbyist-abramoff-for- 203 “Denny’s begins check reimbursement to settle discrimination channel-one). lawsuits,” Austin American Statesman, December 12, 1995. 183 Andrew Wheat, “Thin Reed; Will Abramoff’s Deep Throat Swallow 204 “New Race Bias Charges Against Denny’s Restaurants,” San God’s Mouthpiece?” Texas Observer, January 27, 2006 (http://www. Francisco Chronicle, June 17, 2993. texasobserver.org/article.php?aid=2116). 205 Stuart Gilson, Creating Value through Corporate Restructuring: Case 184 Matthew Conitnetti, “A Decade of Reed,” Weekly Standard, Studies in Bankruptcies, 2001, John Wiley & Sons, p115; “New Race Bias June 27, 2005 (http://www.weeklystandard.com/Content/Public/ Charges Against Denny’s Restaurants,” San Francisco Chronicle, June Articles/000/000/005/732ujayv.asp?pg=2). 17, 2993; Amended Consent Decree, United States of America v. Flagstar 185 Ira Teinowitz, “Primedia employed lobbyist Abramoff for Channel Corporation and Denny’s Inc. 93-cv-20208-JW consolidated with Kristina One,” Advertising Age, January 11, 2006 (http://www.commercialalert. Ridgeway et al. v. Flagstar Corporation and Denny’s Inc. 93-cv-20202-JW org/news/Archive/2006/01/primedia-employed-lobbyist-abramoff-for- (N.D. Cal.) (http://www.usdoj.gov/crt/housing/documents/dennysettle2. channel-one). htm#secIII). 186 Matthew Conitnetti, “A Decade of Reed,” Weekly Standard, 206 Floyd Norris, “Buyout Kings Flee Disaster at Denny’s,” The New York June 27, 2005 (http://www.weeklystandard.com/Content/Public/ Times, March 23, 1997. Articles/000/000/005/732ujayv.asp?pg=2). 207 Dave Goldiner, “Mom: Boobs at Toys “R” Us Hassled me over 187 Todd Shields, “Abramoff probe touches Primedia’s Channel One, nursing,” New York Daily News, September 15, 2006 (http://www. MPA,” MediaWeek.com, October 16, 2006 (http://www.mediaweek. nydailynews.com/news/2006/09/15/2006-09-15_mom_boobs_at_ com/mw/news/print/article_display.jsp?vnu_content_id=1003254277); toys_r_us_hassled_me_over_n.html). Committee on Finance, United States Senate, “Minority Staff Report: 208 Corky Siemaszko, “Nursing a Grievance,” New York Daily News, Investigation of Jack Abramoff’s Use of Tax-Exempt Organizations,” October September 22, 2006. 2006, pp14-17 (http://finance.senate.gov/press/Bpress/2005press/ prb101206.pdf). 209 Tracy Connor, “The Great New York breast-feeding tests,” New York Daily News, October 8, 2006. 188 Matthew Conitnetti, “A Decade of Reed,” Weekly Standard, June 27, 2005 (http://www.weeklystandard.com/Content/Public/ 210 Nina Bernstein, “First Baby of 2007? Toy Chain’s Prize Runs Afoul of Articles/000/000/005/732ujayv.asp?pg=2). the Immigration Issue,” The New York Times, January 6, 2007. 189 Andrew Wheat, “Thin Reed; Will Abramoff’s Deep Throat Swallow 211 Jennifer Fermino, “’Baby New Year’ retains title,” The New York Post, God’s Mouthpiece?” Texas Observer, January 27, 2006 (http://www. January 7, 2007. texasobserver.org/article.php?aid=2116). 212 “Collegeville Area Air Monitoring Results,” Pennsylvania Department 190 Tanya Bielski, “Deal Market Constricts As First Quarter’s Dollar of Environmental Protection, October 15-18, 2007 (http://www.depweb. Volume Dips,” BuyOuts, April 07, 1997; “Investment History,” KKR state.pa.us/southeastro/cwp/view.asp?a=3&Q=532150&pp=3). Corporate Website, Accessed February 19, 2008 (http://www.kkr.com/ 213 “Ambient Air Sampling Project for Trichloroethylene and Other Toxic investments/history.html). Air Compounds in the Collegeville Area; Revised Work Plan,” Pennsylvania 191 “KinderCare Learning Centers and Knowledge Learning Corporation Department of Environmental Protection Bureau of Air Quality, December Announce Merger Agreement,” November 5, 2004 (http://kkr.com/news/ 7, 2007, p3 (p5 of PDF) (http://www.depweb.state.pa.us/southeastro/ press_releases/2004/11-05-04.html). lib/southeastro/collegeville_work_plan_under_epa_grant.pdf). 192 Jean Hopfensperger , “Star Tribune Special Report: Examing Day 214 “Investor Group Led by KKR Completes $1.27 Billion Acquisition of Care,” Star Tribune (Minneapolis, MN) April 24, 2005. Accellent Inc.,” KKR Corporate Website, November 22, 2005 (http://kkr. com/news/press_releases/2005/11-22-05.html). 193 Jean Hopfensperger , “Star Tribune Special Report: Examing Day Care,” Star Tribune (Minneapolis, MN) April 24, 2005; Minnesota 215 “Rendell objects to EPA trichloroethylene rule,” Associated Press, Department of Human Services Licensing Information, “Kindercare April 24, 2007. Learning Center,” (http://licensinglookup.dhs.state.mn.us/Details. 216 “Trichloroethyene, Hazard Summary-Created April 1992; Revised in aspx?l=801275&s=1&t=13). January 2000,” U.S. Environmental Protection Agency Website, Accessed 194 Jean Hopfensperger , “Star Tribune Special Report: Examing February 12, 2008 (http://www.epa.gov/ttn/atw/hlthef/tri-ethy.html). Day Care,” Star Tribune (Minneapolis, MN) April 24, 2005; Minnesota 217 “Apollo to buy Borden; KKR to unload Borden Chemical to another Department of Human Services Licensing Information, “Kindercare equity firm,” Chemical Week, July 7, 2004 (http://pubs.acs.org/cen/ Learning Center,” (http://licensinglookup.dhs.state.mn.us/Details. news/8227/8227apollo.html). aspx?l=801275&s=1&t=13). 218 David Carey, “Hexion rewards Apollo,” Daily Deal/The Deal, 195 “Bain Capital, KKR and Vornado Complete Acquisition of Toys November 14, 2006. “R” Us, Inc.” KKR, July 21, 2005 (http://kkr.com/news/press_ 219 James Bruggers, “Looking for a way out,” The Courier-Journal releases/2005/07-21-05.html). (Louisville, KY), October 27, 2003 (http://www.courier-journal.com/ 196 “Toys “R” Us Denies Discrimination Claim,” Associated Press, July cjextra/2003projects/toxicair/1027/wir-7-river1027-10284.html). 12, 2007 (http://www.cbsnews.com/stories/2007/07/12/business/ 220 Gerth Joseph, “Council hears complaints on air pollution; main3048330.shtml?source=RSSattr=Business_3048330). KKR’s Race for Profit 37

Rubbertown neighbors frustrated by inaction,” The Courier-Journal measure would boost utility panel’s authority over proposed deal,” (Louisville, KY), February 6, 2004. Houston Chronicle, February 28, 2007. 221 Paying a price for polluters; Many of America’s largest companies 242 Elizabeth Souder and Randy Lee, “TXU sale unlikely to help foul the environment but clean up on billions of dollars in tax benefits,” consumers,” Dallas Morning News, June 25, 2007 (http://www. Time Magazine, November 23, 1998. dallasnews.com/sharedcontent/dws/news/dmn/stories/062407dnbustxu 222 Id. report.38feda0.html). 223 John McQuaid, “Chemical Corridor,” Times-Picayune, May 21, 2000. 243 Dave Michaels, “Global-warming legislation may see light of day: cap- and-trade move to limit greenhouse gases has chance,” Dallas Morning 224 “2007 Chemicals Industry Report,” Roberts Environmental News, February 7, 2008; Letter from Eugene Trisko on behalf of the Center Center, January 18, 2008, p3 (http://www.roberts.cmc.edu/psi/PDF/ for Energy & Economic Development, Inc. (CEED) regarding the Regional chemicals2007.pdf). Greenhouse Gas Initiative Memorandum of Understanding and draft Model 225 MSN Money, “Rockwood Holdings, Inc.: Ownership,” based on SEC Rules, May 22, 2006 (http://www.rggi.org/docs/ceed_rggi_comments_ filings from 3/15/07, Accessed February 12, 2008 (http://moneycentral. may_22_2006.pdf). msn.com/ownership?Symbol=ROC); “Current Investments,” KKR website, 244 Drawn from records available at Senate Lobbying Disclosure website: Accessed February 13, 2008 (http://kkr.com/investments/current-invest. http://sopr.senate.gov/cgi-win/m_opr_viewer.exe?DoFn=0). See Appendix html) 5 for details. 226 “2007 Chemicals Industry Report,” Roberts Environmental 245 Drawn from records available at Senate Lobbying Disclosure website: Center, January 18, 2008, p6 (http://www.roberts.cmc.edu/psi/PDF/ http://sopr.senate.gov/cgi-win/m_opr_viewer.exe?DoFn=0). chemicals2007.pdf). 246 KKR Web site, Our approach to Ownership, third graph, http://www. 227 “2007 Chemicals Industry Report,” Roberts Environmental kkr.com/who/approach.html Center, January 18, 2008, p3 (http://www.roberts.cmc.edu/psi/PDF/ chemicals2007.pdf). 247 SunGard Data Systems, Inc., Form 10-K, filed March 9, 2007, p. 51. 228 “2007 Chemicals Industry Report,” Roberts Environmental 248 Id. Center, January 18, 2008, p6 (http://www.roberts.cmc.edu/psi/PDF/ 249 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule chemicals2007.pdf). 14A, filed June 27, 2005, p. 49-50. 229 “Rockwood Holdings Inc.: Ownership,” MSN Money, 250 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule Accessed February 11, 2008 (http://moneycentral.msn.com/ 14A, filed June 27, 2005, p. 24. ownership?Symbol=ROC). 251 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule 230 “2007 Chemicals Industry Report,” Roberts Environmental 14A, filed June 27, 2005. Calculated as Premium of $11.05 per shares Center, January 18, 2008, p3 (http://www.roberts.cmc.edu/psi/PDF/ multiplied by 290,339,403 outstanding shares taxed at a rate of 15%. chemicals2007.pdf). 252 SunGard Data Systems, Inc., Form 10-K, filed March 9, 2007, p. 25. 231 “2007 Chemicals Industry Report,” Roberts Environmental 253 Biomet, Inc, Definitive Proxy Statement, Schedule 14A, filed August Center, January 18, 2008, p6 (http://www.roberts.cmc.edu/psi/PDF/ 8, 2007, p. 44-45. chemicals2007.pdf). 254 Based on 30-day LIBOR rate on December 10, 2007 of 5.23% plus 232 “2007 Chemicals Industry Report,” Roberts Environmental spreads from “Biomet: Deal Postmortem,” Standard and Poor’s LCD Center, January 18, 2008, p50 (http://www.roberts.cmc.edu/psi/PDF/ News, September 28, 2007. chemicals2007.pdf). 255 Compound annual growth rate of EBT including unusual Items for 233 “2007 Chemicals Industry Report,” Roberts Environmental Biomet, Inc. May 31, 2003-May 31, 2007 from Capital IQ. Center, January 18, 2008, p6 (http://www.roberts.cmc.edu/psi/PDF/ chemicals2007.pdf). 256 Biomet, Inc, Definitive Proxy Statement, Schedule 14A, filed August 8, 2007, p. 41. 234 Elizabeth Souder, “TXU: No one has topped KKR bid,” Dallas Morning News, April 3, 2007 (http://www.dallasnews.com/sharedcontent/dws/ 257 Id. bus/coal/stories/040307dnbustxubids.6132be.html). 258 While Biomet’s interest payments would be taxable to taxable holders 235 Elizabeth Souder, “TXU wraps up $45 billion sale to private investors: of the debt, most taxable debt is held by tax-exempt investors. Raghavan, Energy giant to run as 3 separate firms; future for consumers unclear,” Anita, “Debt and the Corporate Tax Base,” The Wall Street Journal, June Dallas Morning News, October 11, 2007. 16, 2007, p.A5. 236 Id. 259 Compound annual growth rate of dividend payments for Biomet, Inc.2003-2007 from Capital IQ. 237 Elizabeth Souder and Randy Lee, “TXU sale unlikely to help consumers,” Dallas Morning News, June 25, 2007 (http://www. 260 Biomet, Inc, Definitive Proxy Statement, Schedule 14A, filed August dallasnews.com/sharedcontent/dws/news/dmn/stories/062407 8, 2007, p. 75. dnbustxureport.38feda0.html); “TXU may cut rates by 15%,” Austin 261 It should be noted that KKR’s limited partners will also pay taxes Business Journal, May 30, 2007 (http://www.bizjournals.com/austin/ on their share of the capital gains to the extent that they are taxable. stories/2007/05/28/daily12.html?t=printable). This analysis does not seek to compare this with what Biomet’s public 238 Elizabeth Souder and Randy Lee, “TXU sale unlikely to help shareholders would have paid in capital gains had the company remained consumers,” Dallas Morning News, June 25, 2007 (http://www. public, since it would be difficult to calculate what Biomet’s public share dallasnews.com/sharedcontent/dws/news/dmn/stories/062407dnbustxu price would be even with the same growth assumptions, and it is difficult report.38feda0.html). to model capital gains tax collections from the sale of public shares absent a corporate transaction. 239 Robert W. Gee and Brett Perlman, “Texas and the environment end up losing in TXU deal,” Austin American-Statesman, March 10, 2007; 262 Consumer Product Safety Commission online database, accessed Randy Lee Loftis and Elizabeth Souder, “TXU sale won’t end coal plant December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx). controversy,” 263 Consumer Product Safety Commission online database, accessed The Dallas Morning News, February 27, 2007 (http://www.dallasnews. December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx). com/sharedcontent/dws/bus/stories/022707dnbustxuenviro.17ed8e2. 264 Drawn from records available at Senate Lobbying Disclosure website: html). http://sopr.senate.gov/cgi-win/m_opr_viewer.exe?DoFn=0). 240 “TXU turns to nuclear,” Transcript, Living on Earth, April 13, 2007 (http://www.loe.org/shows/shows.htm?programID=07-P13- 00015#feature1); Rhett A. Butler, “TXU hopes to build nuclear reactors instead of coal-fired power plants,” mongabay.com, April 10, 2007. 241 R.G. Ratcliffe, “Legislators move swiftly to review, block TXU sale: SERVICE EMPLOYEES INTERNATIONAL UNION 1800 Massachusetts Avenue NW • Washington, DC 20036 • 202-730-7000

behindthebuyouts.org

6863-205U 2.19.08 jc